Accounting Final Exam 🗣️‼️‼️

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Questions and Answers

What is the journal entry when a company borrows money using a formal promissory note?

  • Debit – Cash, Credit – Accounts Receivable
  • Debit – Cash, Credit – Loan Payable
  • Debit – Cash, Credit – Notes Payable (correct)
  • Debit – Notes Payable, Credit – Cash

What accounts are included in the stockholder’s equity section?

  • Common Stock and Preferred Stock (correct)
  • Cash and Accounts Receivable
  • Bonds Payable and Retained Earnings
  • Liabilities and Deferred Revenue

What is the journal entry to record the sale of stock at an amount in excess of par value?

  • Debit – Cash, Credit – Liabilities, Credit – Common Stock
  • Debit – Common Stock, Credit – Cash, Credit – APIC
  • Debit – Dividends Payable, Credit – Common Stock, Credit – Cash
  • Debit – Cash, Credit – Common Stock, Credit – Additional Paid-in Capital (correct)

What is a contingent liability?

<p>A liability that may become due depending on the outcome of a future event (D)</p> Signup and view all the answers

Which of the following describes a residual claim?

<p>A claim to the remaining assets after all debts have been paid (C)</p> Signup and view all the answers

What is the accounting equation used to calculate components of a company's financial position?

<p>A = L + SE (A)</p> Signup and view all the answers

What is typically included in the heading of every financial statement?

<p>Name of the organization, title of the statement, and date (C)</p> Signup and view all the answers

What is a typical outcome of collecting accounts receivable?

<p>Increase in assets and an increase in cash (D)</p> Signup and view all the answers

Which financial statement is typically used to show the revenues generated by a company?

<p>Income Statement (A)</p> Signup and view all the answers

What is an unadjusted trial balance?

<p>A list of all accounts and their balances before adjustments (C)</p> Signup and view all the answers

What is the journal entry to record the return of a product by a customer?

<p>Debit – Sales R&amp;A, Credit – Cash or Accounts Receivable (B)</p> Signup and view all the answers

What is inventory turnover?

<p>The ratio of sales to average inventory (C)</p> Signup and view all the answers

When is an accrual adjustment typically required?

<p>When expenses are billed but not yet paid (A)</p> Signup and view all the answers

What information do credit terms like '2/30, n/60' provide?

<p>Discount details and payment timeframes (A)</p> Signup and view all the answers

What type of account is the Allowance for Doubtful Accounts?

<p>Contra asset account that offsets Accounts Receivable (A)</p> Signup and view all the answers

What is the purpose of a post-closing trial balance?

<p>To ensure debits equal credits after closing temporary accounts (C)</p> Signup and view all the answers

How is Cost of Goods Sold (COGS) calculated under the LIFO method?

<p>Based on the most recent inventory purchases (D)</p> Signup and view all the answers

What is the journal entry to record a company's estimate of bad debt expense?

<p>Debit – Bad Debt Expense, Credit – Allowance for Doubtful Accounts (B)</p> Signup and view all the answers

Under what conditions is the specific identification method used for inventory?

<p>For unique or high-value items, where each item is distinguishable (A)</p> Signup and view all the answers

What are the advantages of extending credit to customers?

<p>Encourages larger or more frequent purchases from customers (B)</p> Signup and view all the answers

What is the journal entry when a company lends money using a formal promissory note?

<p>Debit – Note Receivable, Credit – Cash (B)</p> Signup and view all the answers

Flashcards

Calculate Net Income/Loss

Subtract total expenses from total revenues to determine net income or net loss.

Accounting Equation

Assets = Liabilities + Equity (Owner's Equity). A fundamental accounting principle.

Accrual Adjustment

Recording a revenue or expense that is earned or incurred but not yet received or paid.

Adjusting Journal Entry

Journal entries made at the end of an accounting period to update accounts.

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Chart of Accounts

A list of all the accounts used by a company to track transactions.

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Revenue

Income generated from sales of goods or services.

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Expense

Costs incurred in running a business.

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Debit

An accounting entry that increases balance of an account that is normally at a debit balance.

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Bond Premium

The amount paid for a bond that exceeds its face value. This occurs when the market interest rate is lower than the bond's stated interest rate, making the bond more attractive to investors.

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Bond Discount

The amount by which a bond's price is less than its face value. This occurs when the market interest rate is higher than the bond's stated interest rate, making the bond less attractive to investors.

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Contingent Liability

A potential liability that may arise depending on the outcome of a future event. It's not a definite liability, but it needs to be disclosed in the financial statements.

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Advantage of Debt Financing

Debt financing allows companies to leverage borrowed funds to increase returns. This can lead to higher profitability as long as the return on the borrowed funds exceeds the cost of borrowing.

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Stockholder's Equity Section

This section of the balance sheet represents the owners' stake in the company. It includes common stock, preferred stock, additional paid-in capital, retained earnings, and treasury stock.

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What are the journal entries to record the purchase and payment of merchandise under discount terms?

When purchasing merchandise with a discount, two journal entries are made: (1) purchase: Debit Purchases and Credit Accounts Payable for the gross amount. (2) payment: Debit Accounts Payable and Credit Cash for the net amount, which is the gross amount minus the discount.

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What is the journal entry to record the return of a product by a customer?

To record a customer's product return, a debit to Sales Returns and Allowances and a credit to Cash or Accounts Receivable is made.

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What is the LIFO method?

The Last-In, First-Out (LIFO) method assumes that the most recently purchased inventory items are sold first, leading to the oldest inventory items remaining in the ending inventory.

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How is COGS calculated using LIFO?

Under LIFO, the cost of goods sold is calculated by multiplying the unit cost of the most recent purchases by the number of units sold. The remaining inventory is valued using the cost of the oldest purchases.

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What is inventory turnover?

Inventory turnover measures how quickly a company sells and replenishes its inventory. It is calculated by dividing the cost of goods sold by the average inventory.

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What are the advantages of extending credit to customers?

Extending credit to customers can increase sales by attracting buyers who prefer to pay later. It can also build customer loyalty and improve cash flow if customers pay on time.

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What is the journal entry to record a company's estimate of bad debt expense?

To record bad debt expense, a debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts is made.

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What are intangible assets?

Intangible assets are non-physical assets that possess economic value. Examples include patents, copyrights, trademarks, and goodwill.

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Study Notes

Chapter 1

  • Calculate net income/net loss.
  • Define revenues and expenses.
  • Define assets and liabilities.
  • Use the accounting equation (A = L + SE) to find a missing factor.
  • Identify information required for financial statement headings.
  • Explain US GAAP and its creator.

Chapter 2

  • Identify transactions not requiring journal entries.
  • Define a chart of accounts.
  • Describe the impact of account receivable collections on the accounting equation.
  • Calculate total assets at year-end, given transactions.
  • Identify debit and credit entries in transactions.
  • Determine the normal balance side of accounts.
  • Describe journal entries for recording supplies on account.
  • Calculate the total debit and credit balances for a series of accounts.

Chapter 3

  • Identify transactions that increase revenue.
  • Identify the financial statement where expenses appear.
  • Calculate net income, given information.
  • Identify transactions not reported on the income statement.
  • Describe the journal entry for cash received in advance of a service.
  • Determine the appropriate month to record revenue and expense.
  • Describe the journal entry for cash collected from an existing account receivable.

Chapter 4

  • Identify when accrual and deferral adjustments are required.
  • Memorize the accrual/deferral chart (from PowerPoint).
  • Define depreciation expense.
  • Explain the need for adjusting journal entries for income taxes.
  • Calculate Retained Earnings at year-end.
  • Explain the purpose of a post-closing trial balance.
  • Identify accounts with zero balances on post-closing trial balance.

Chapter 6

  • Memorize inventory formulas and sales formula summaries.
  • Interpret credit terms (e.g., 2/30, n/60).
  • Describe journal entries for merchandise purchases and payments.
  • Describe journal entries for product return.

Chapter 7

  • Inventories are recorded on the balance sheet until sold.
  • Define LIFO (Last-In, First-Out) inventory costing method.
  • Explain how LIFO calculates COGS (Cost of Goods Sold).
  • Explain FIFO (First-In, First-Out) inventory costing method.
  • Calculate COGS using the FIFO method.
  • Calculate COGS using the weighted average method.
  • Explain the specific identification method.
  • Define inventory turnover.

Chapter 8

  • Describe the advantages of extending credit to customers.
  • Define Allowance for Doubtful Accounts.
  • Explain the journal entry for a company's estimated bad debt expense.

Chapter 9

  • Define intangible assets and examples.
  • Explain the cost principle and its application to capitalized assets.
  • Calculate the total cost of a land purchase.
  • Explain whether freight costs are capitalized.
  • Calculate depreciation expense using the straight-line method for a full year.
  • Calculate depreciation expense using the straight-line method for a partial year.
  • Calculate an asset's book value.

Chapter 10

  • Define current liabilities and give examples.
  • Explain if FICA taxes are paid by employers or employees (or both).
  • Define Deferred Revenue.
  • Explain transactions leading to bond premium or discount.
  • Explain journal entries related to promissory notes and bond borrowing at face value.
  • Define contingent liabilities.

Chapter 11

  • Identify advantages of debt financing over equity financing.
  • Identify accounts in the stockholder's equity section.
  • Memorize the common stock triangle.
  • Describe the journal entry for the sale of stock above par value.
  • Describe the journal entry for a dividend declaration.
  • Define residual claim.

General

  • Exam structure: 80 multiple-choice questions (2.5 points each).
  • Additional study material available in Canvas: "At-Home Review" and "Extra Solved Problems" (PowerPoint presentations).

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