Part 1-
Question 1. An account is an important accounting record where financial information is stored until needed. Briefly explain (1) the nature of an account, (2) the different types of accounts, and (3) the manner in which an account is increased and decreased, and the normal balance of each type of accounts.
Question 2. The adjusted trial balance of Gertz Company included the following selected accounts.
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Debit
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Credit
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Sales
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$575,000
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Sales returns and allowances
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$ 50,000
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Sales discounts
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9,500
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Cost of goods sold
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347,000
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Freight-out
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2,000
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Advertising expense
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15,000
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Interest expense
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19,000
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Store salaries expense
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74,000
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Utilities expense
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18,000
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Depreciation expense
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3,500
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Interest revenue
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25,000
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Instructions:
• Use the above information to prepare a multiple-step income statement for the year ended December 31, 2010.
• Calculate the profit margin ratio and gross profit rate. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings.
Question 3. Please prepare the following journal entries. Indicate which account should be debited and which account should be credited, along with the dollar amount of the debit and credit.
Investors invest $50,000 in exchange for 1,000 shares of common stock.
Company purchased equipment for $10,000 on credit.
Company received $5,000 for services performed.
Company made payment on account for $2,000.
Company received $7,000 for services not yet performed.
Question 4. Your friend Wendy plans to open a hair salon. Wendy states that she does not have time to develop and implement a system of internal controls.
Explain to Wendy the objectives of a system of internal control.
Explain to Wendy at least four key controls she must establish to protect herself against fraud. You should state specific internal control procedures and relate your answer to her hair salon business.
Part 2-
Question 1. Shareholders want answers to all of the following questions except for?
How does the company compare in profitability with competitors?
Did the company meet its operating expense budget?
Will the company be able to pay its liabilities as they come due?
Is the company earning a satisfactory return?
Question 2. Paying back long-term debt is an example of a(n)
non-cash investing activity.
investing activity.
financing activity.
operating activity.
Question 3. Resources owned by a business are referred to as
revenues.
dividends.
liabilities.
assets.
Question 4. On a classified balance sheet, prepaid expenses are classified as
property, plant, and equipment.
long-term investments.
intangible assets.
current assets.
Question 5. For 2012, LBJ Corporation reported net income of $40,000; net sales $1,400,000; and weighted average shares outstanding of 10,000. There were no preferred stock dividends. What was the 2012 earnings per share?
$4.00
$2.00
$14.00
$140.00
Question 6. Which of the following describes the normal balance and classification of the dividends account?
Debit, Expense
Credit, Liability
Debit, Stockholders' equity
Debit, Asset
Question 7. The accrual accounting term used to indicate an item paid in advance or the receipt of cash in advance is _____
prepayment.
depreciation.
deferral.
accrual.
Question 8. A periodic inventory system would most likely be used by a(n) _____
automobile dealership.
jewelry store.
furniture store.
local neighborhood restaurant.
Question 9. LBJ Company recorded the following events involving a recent purchase of merchandise.
- Received goods for $75,000, terms 2/10, n/30
- Returned $2,500 of the shipment for credit due to damaged goods
- Paid $1,200 for freight in
- Paid the invoice within the discount period
As a result of these events, the company's merchandise inventory
increased by $72,250.
increased by $72,176.
increased by $75,876.
increased by $73,700.
Question 10. In a period of increasing prices, which of the following inventory methods generally results in the highest gross profit?
Average cost method
FIFO method
LIFO method
None of the above