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176 Cards in this Set
- Front
- Back
In an exchange of plant assets that has commercial substance, a gain on disposal is:
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Recognized Immediately
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In exchanges of plant assets that have commercial susbstance:
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Both Gains & Losses are recognized
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The asset turnover ratio is computed by dividing:
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Net Sales / Average Total Assets
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Companies amortize the cost of a patent over its:
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Legal life or its useful life, whichever is shorter
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A gain on sale of a plant asset occurs when the proceeds of the sale exceed the:
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Book Value of the Asset Sold
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Ordinary repairs are expenditures to maintain the operating efficiency of a plant asset and are referred to as:
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Revenue Expenditures
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The method that ignores salvage value in determining the amount of depreciation is the:
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Declining-Balance Method
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The depreciation method that produces a decreasing annual depreciation expense over an asset's useful life is the:
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Declining-Balance Method
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Depreciable cost is the:
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cost of an asset - its salvage value
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The accounts receivable turnover ratio is computed by dividing:
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Net Credit Sales / Average Net Accounts Receivable
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The entry to record the dishonor of a note receivable assuming the payee expects eventual collection includes a debit to:
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Accounts Receivable
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Which of the following approaches for bad debts is best described as a balance sheet method?
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Percentage-of-receivables basis
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Compensating balances
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Minimum cash balances required by a bank in support of bank loans.
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Voucher system
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A network of approvals by authorized individuals acting independently to ensure that all disbursements by check are proper.
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A credit balance in Cash Over and Short is reported as a:
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Miscellaneous Revenue
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Entries are made to the Petty Cash account when:
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Establishing the Fund
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A bank may issue a credit memoranda for:
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the collection of a note receivable for the depositor by the bank
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Interest is usually associated with:
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Notes Receivable
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The existing balance in Allowance for Doubtful Accounts is considered in computing bad debts expense in the:
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Percentage of Receivables basis (The existing balance is ignored when using the sales basis)
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Payee
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The party to whom payment of a promissory note is to be made.
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Percentage-of-receivables basis
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Management estimates what percentage of receivables will result in losses from uncollectible accounts.
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Percentage-of-sales basis
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Management estimates what percentage of credit sales will be uncollectible.
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Accelerated-depreciation method:
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Depreciation method that produces higher depreciation expense in the early years than in the later years.
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Additions and improvements:
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Costs incurred to increase the operating efficiency
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Amortization:
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The allocation of the cost of an intangible asset to expense over its useful life in a systematic and rational manner.
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Asset turnover ratio:
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A measure of how efficiently a company uses its assets to generate sales; calculated as net sales divided by average total assets.
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Capital expenditures:
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Expenditures that increase the company's investment in productive facilities.
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Declining-balance method:
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Depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual depreciation expense over the useful life of the asset.
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Depletion:
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The allocation of the cost of a natural resource to expense in a rational and systematic manner over the resource's useful life.
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Going-concern assumption:
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States that the company will continue in operation for the foreseeable future.
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Goodwill:
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The value of all favorable attributes that relate to a business enterprise.
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Intangible assets:
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Rights
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Materiality principle:
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If an item would not make a difference in decision making
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Ordinary repairs:
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Expenditures to maintain the operating efficiency and productive life of the unit.
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Plant assets:
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Tangible resources that are used in the operations of the business and are not intended for sale to customers.
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Revenue expenditures:
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Expenditures that are immediately charged against revenues as an expense.
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Straight-line method:
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Depreciation method in which periodic depreciation is the same for each year of the asset's useful life.
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Units-of-activity method:
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Depreciation method in which useful life is expressed in terms of the total units of production or use expected from an asset.
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Accounts receivable turnover ratio
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A measure of the liquidity of accounts receivable; computed by dividing net credit sales by average net accounts receivable
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Allowance method
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A method of accounting for bad debts that involves estimating uncollectible accounts at the end of each period
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Average collection period
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The average amount of time that a receivable is outstanding; calculated by dividing 365 days by the accounts receivables turnover ratio
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Bad Debts Expense
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An expense account to record uncollectible receivables
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Direct write-off method
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A method of accounting for bad debts that involves expensing accounts at the time they are determined to be uncollectible
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Factor
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A finance company or bank that buys receivables from businesses and then collects the payments directly from the customers
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Maker
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The party in a promissory note who is making the promise to pay
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Notes receivable
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Claims for which formal instruments of credit are issued as proof of the debt
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There are two parties to a check: the maker and the payee
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False
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The lack of agreement between the bank balance and the book balance is due to time lags and errors
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True
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A company records each reconciling item used to determine the adjusted cash balance per books.
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True
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The principles of internal control include all of the following except:
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Combining of Duties
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Controls that relate primarily to the safeguarding of assets are:
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Physical Controls
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Making payments from a petty cash fund requires:
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No accounting entry to record a payment when it is made from petty cash.
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The party who issues a check is the:
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Maker
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All of the following would involve a debit memorandum except:
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Interest Earned
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Journal entries are required by the depositor for all of the following except:
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Bank Errors
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Cash equivalents include all of the following except:
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Restricted Cash
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Under the percentage-of-receivables basis:
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The amount of bad debt expense is the difference between the required balance and the existing balance in the allowance account.
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Companies report short-term notes receivable at their cash (net) realizable value.
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True
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A dishonored note receivable is no longer negotiable and the payee has no claim against the maker of the note.
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False
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Accounting issues associated with accounts receivable include all of the following except:
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Analyzing accounts receivable
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Allowance for Doubtful Accounts is:
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A contra asset account
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Writing off an uncollectible account under the allowance method requires a debit to:
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Allowance for Doubtful Accounts
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The percentage-of-sales basis of estimating uncollectibles:
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Results in a better matching of expenses with revenues
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The percentage-of-receivables basis of estimating uncollectibles:
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Produces a better estimate of cash realizable value
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The direct write-off method:
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Shows only actual losses from uncollectible accounts
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Sales resulting from the use of Visa and MasterCard credit cards are considered:
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Cash Sales
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The entry to record the dishonor of a note receivable assuming the payee expects eventual collection includes a debit to:
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Accounts Receivable
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The accounts receivable turnover ratio is computed by dividing:
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Net Credit Sales / Average Net Accounts Receivable
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The cost of land includes closing costs such as title and attorney's fees.
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True
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The declining-balance method is considered an accelerated-depreciation method.
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True
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The collection of an account receivable from a customer would:
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Not affect liabilities
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Which of the following accounts is increased with a debit?
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Owner’s Withdrawals
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Which of the following accounts is increased with a credit?
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Fees Earned
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Failure to make an adjusting entry to recognize accrued salaries payable would cause an:
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Understatement of expenses and liabilities and an overstatement of stockholders' equity.
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True statements of the balance sheet equation:
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Assets - Liabilities = Owner's Equity; Assets = Liabilities + Owner's Equity; Assets - Owner's Equity = Liabilities
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Which pair of accounts follows the rules of debit and credit in the same manner?
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Prepaid Rent & Advertising Expense
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An investment by the owners in a business increases:
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Assets & Owner's Equity
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The purchase of an asset for cash:
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Leaves total assets unchanged
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The payment of a liability:
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Decreases assets & liabilities
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A dividend that is declared and paid:
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Decreases assets & owner's equity
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A company that receives money in advance of performing a service:
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Debits Cash & Credits Unearned Fees
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An expense which is incurred:
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Decreases Owner's Equity
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What item does not affect owner's equity?
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Land purchased
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The statement of owner's equity would not show:
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Revenues & Expenses
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Unearned Revenues are recorded by companies that:
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Receive money in advance of the performance of a service
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When a company has performed a service but has not yet received payment
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it:
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When collection is made on Accounts Receivable:
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Total assets will remain the same
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Payment on a portion of Accounts Payable will:
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Not affect owner's equity
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When a company receives an electric bill but will not be paying it right away it should:
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Debit Utilities Expense and credit Accounts Payable
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A transaction in which six months' rent is paid in advance results in a Decrease to Cash and a increase to:
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Prepaid Rent
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A company that receives money in advance of performing a service:
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Increase Cash and Increase Unearned Fees
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When a service has been performed but no cash has been received:
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The entry includes a increase to Accounts Receivable
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Which of the following transactions results in the recognition of an expense?
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Expiration of usefulness of equipment during the accounting period
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When a magazine company receives an advance payment for a subscription it:
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Debits Cash & Credits Unearned Subscriptions Revenue
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Which of the following transactions results in an increase in expenses?
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Payment of wages
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Which of the following is an example of a deferral?
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A commission collected in advance
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Which of the following is an example of an accrual?
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Interest earned but not yet received
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An adjusting entry made to record accrued interest on a note payable due next year consists of a:
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Increase to Interest Expense & an Increase to Interest Payable
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In accounting
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depreciation refers to the:
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What account is a contra account?
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Accumulated Depreciation; Office Furniture
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Which account would not likely need to be adjusted at year-end?
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Land
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The carrying value of a depreciable asset equals:
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Original cost - Accumulated Depreciation
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Failure to adjust for accrued wages at year end will result in an:
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Overstatement of Net Income
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The adjustment for that portion of revenue received in advance which has now been earned is to debit:
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Unearned Revenue & Credit Service Revenue
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Failure to record depreciation at year end will result in an:
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Overstatement of total assets
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If an adjusting entry were not made at the end of a period to remove the earned revenue from the Unearned Revenue account:
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Liabilities would be overstated
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An adjusting entry made to record accrued interest on a note payable due next year consists of a debit to:
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Interest Expense & a Credit to Interest Payable
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In November
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cash is received in advance of rendering services. Assuming that the services have been performed by December 31; the adjusting entry would be a:
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In July
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a company pays two years' insurance in advance. The December 31 adjusting entry is a:
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An important purpose of closing entries is to:
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Set income statement account balances to zero to begin the next period
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A deposit in transit on a bank (cash) reconciliation should be:
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Added to the bank balance shown for the depositor
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Assuming the allowance method for bad debts is used; when a customer's uncollectible account is written off; a decrease should be made to:
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Accounts Receivable
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Which generally accepted accounting principle best supports the need for the account Allowance for Doubtful Accounts?
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Matching Principle
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Credit terms of 2/10; n/30 means that a:
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2% discount for early payment is available for a period up to ten days following the date of the invoice
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When the allowance method is used
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the entry which is appropriate when a particular account is written off as an uncollectible should include a:
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A Company that sells magazines collects subscription fees prior to the publication and distribution of the magazine should be recording a increase to Cash and a increase to:
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Unearned Revenue
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The cost of goods sold account is an:
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Expense
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Which of the following is most likely to appear on the balance sheet as a current asset?
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Accounts Receivable
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What would be deducted from the balance per books on a bank reconciliation?
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Service charges
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What would be added to the balance per books on a bank reconciliation?
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Notes collected by the bank
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What would be added to the balance per bank?
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Deposit in transit
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What would be deducted from the balance per bank?
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Outstanding checks
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A check (written by the company) for $125 is incorrectly recorded by a company as $152. On the bank reconciliation the $27 error should be:
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Added to the balance per books
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What bank reconciliation item would not result in an adjusting entry?
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Outstanding checks
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On a bank reconciliation interest earned on a checking account should be:
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Added to the balance per books
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Which bank reconciliation items would result in an adjusting entry?
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(1) Service charge (2) Collection of a note by the bank (3) NSF check of customer
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What item on a bank reconciliation would require an adjusting entry on the company's books?
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A bank service charge
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A company issues a check for $142 but records it as $124. On the bank reconciliation the $18 error should be:
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Deducted from the balance per books.
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All of the following bank reconciliation items would result in an adjusting entry on the company's books:
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(1) NSF check of customer (2) Fee for collection of note by bank (3) Interest earned
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The allowance for uncollectible accounts is necessary because:
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When recording uncollectible accounts expense it is not possible to know which specific accounts will not be collected
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The account Allowance for Uncollectible Accounts is classified as a:
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Contra Account to Accounts Receivable
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Under the perpetual inventory system in addition to making the entry to record a sale a company would:
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Debit Cost of Goods Sold & Credit Merchandise Inventory
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Under the allowance method; Uncollectible Accounts Expense is recorded:
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For an estimated amount
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The matching concept:
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Necessitates the recording of an estimated amount for bad debts
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Suppose estimated uncollectible accounts are $25
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000. If the normal balance of the allowance for uncollectible accounts is $9
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Under the Allowance Method when a year-end adjustment is made for estimated uncollectible accounts:
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Total Assets Decrease
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A decrease in the Allowance for Uncollectible Accounts would indicate that:
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More has been written off than had been estimated
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Bottle Inc. purchased an asset on January 1
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1997. Bottle chose the straight-line method of depreciation. If Bottle had chosen an accelerated depreciation method:
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An understatement of the ending inventory in 1991 (if not corrected) will cause:
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1991 net income to be understated & 1992 net income overstated
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The collection of a $400 account within the 2 percent discount period would result in a:
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Debit to Sales Discounts for $8
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When prices are increasing:
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FIFO will result in higher income and a higher inventory valuation than will LIFO
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Problem Company purchased a machine in 1993 for $10
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000. The company bookkeeper incorrectly used a 6-year life instead of a 5-year life to depreciate the machine. The effect of this error on the 1993 financial statements would be an:
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If a company sold an operational asset at a price equal to its book value the selling company would record:
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No gain or loss
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Depletion is recorded for:
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Natural resources
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The book value of a tangible operating asset is:
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Acquisition Cost - Balance in Accumulated Depreciation
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Recording depreciation expense:
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Reduces net income but does not affect the amount of cash generated by a company
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Which of the following is a current asset?
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Inventory
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If the effective (market) rate of interest for a bond is higher than the stated interest rate the bond will sell at:
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A Discount
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If a company issues bonds at a premium then:
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The stated rate of interest was higher than the market rate on the date of issue
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Bonds payable are usually classified on the balance sheet as:
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Long-term liabilities
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Publics issued bonds payable at 98 but at year-end the bonds were selling in the bond market at 99. What entry would Publics make at year-end to record the change in selling price?
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No entry needed
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The journal entry to record the issuance of bonds at a discount should include a:
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Debit to Cash for the face amount of the bonds - the amount of discount
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On the maturity date of bonds payable
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the issuing company will:
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On July 1 1987 AJ Company issued 300 $1000 five-year 9% bonds at 103. The reason AJ issued the bonds at a premium was:
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The stated rate of interest was higher than the rate being paid on investments with comparable risk.
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If a bond payable is sold (issued) at a premium the amount of carrying value (the net long-term liability) reported on the subsequent balance sheets:
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Decreases each year
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If a bond is sold at 98 its stated rate of interest would be:
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Lower than the market rate
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Retained Earnings can best be described as:
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The sum of ALL Net Income - ALL Dividends paid in the history of the company
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Treasury stock is stock that has been:
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Issued & repurchased by the company
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Preferred stock is stock:
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Whose owners receive their dividends before the common stockholders receive dividends
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Dividends are considered:
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A distribution of earnings
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Which of the following is not a part of owners’ equity in a corporation?
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Bonds Payable
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Which of the following would not cause stockholder’s equity to change?
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Collection of an Account Receivable
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Sausage inc. sold & issued 10000 shares of its $10 par value common stock for $15 per share. The entry to record the stock issue would include:
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An Increase to Common Stock for 100000
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Embro Corporation received $50000 cash invested by its owners in the company. The effect on the accounting equation was:
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Owner’s equity & Assets each increased by $50000
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Conributed Capital
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Assets - Liabilities - Retained Earnings
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Total Assets - Total Liabilities =
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Stockholder's Equity
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Retained Earnings (Jan 1) + Net Income - Dividends =
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Retained Earnings (Dec 31)
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Net Income
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Revenues - Expenses
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Retained Earnings
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Net Income - Dividends
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Capital
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Total Assets - Total Liabilities
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Supplies Expense
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Supplies Purchased - Ending Supplies Inventory + Supplies Debit Balance
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Cost of Goods Sold
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Beginning Inventory + Purchases - Ending Inventory
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Cost of Goods Sold - Beginning Inventory + Ending Inventory =
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Purchases
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Gross Margin =
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Net Sales - Cost of Goods Sold
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Uncollectible Accounts Expense =
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Uncollectible Account Recievables - Normal Balance of Allowence for Uncollectible Accounts
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Gross Margin % x Sales =
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Cost of Goods Sold
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