Name: KEY (54 points possible) Date: Period:

ACCOUNTING II STATE TEST REVIEW

STANDARD 2: STUDENTS WILL PREPARE PAYROLL RECORDS

1. What is the difference between a salary and a wage? pg. 340

Salary is the same amount each pay period
Wage is per amount of time (for example per hour)

2. Why do some businesses pay their employees on a commission basis?

To give incentive to increase sales

3. What is considered overtime? How is the overtime rate calculated? pg. 342-3
Overtime is any amount of time worked over 8 hours a day or 40 hours a week.
Regular rate times 1.5

4. List the three federal taxes that businesses are required to withhold from employees’ wages. pg. 349 or 385
Employee Income tax, Social Security, Medicare

5. List the three factors that determine the amount of federal income tax withheld from employee earnings each
pay period. pg. 347
Marital status, withholding allowances, gross/total earnings

6. Why do all employees complete Form W-4? pg. 347

To state withholding allowances and marital status

7. What are some common voluntary deductions that are withheld from employee payroll checks? pg. 353
US Savings Bond, United Way donations, health insurance, IRAs, 401 (k)s

8. Explain why gross earnings, not net pay, is debited to the Salaries Expense account. pg. 369
Gross earnings is what is earned by the employees and this total amount is the expense to the business.

9. Explain why the amounts withheld from employees’ payroll checks are liabilities of the employer. pg. 345,376
Because the employer owes that money to the government or other entity.

10. How is net pay calculated? What account is credited for net pay? Pg. 352, 370
Total earnings minus taxes and other deductions; net pay is credited to CASH

11. How is the employer’s share of FICA tax (Social Security and Medicare) calculated? pg. 349, 373
Total earnings times tax rate

12. How is the employee’s share of FICA tax calculated?

Using the same formula—employees and employers pay the same amount for FICA

13. State and federal unemployment taxes are percentages of what amount? Pg. 375
First $7,000 earned by each employee (tax base) – Unemployment Taxable Earnings

14. When does an employee receive a Form W-2? Pg. 379

Required to be mailed by January 31 of the next year

15. What information is reported on Form W-2? Pg. 378

Total year’s earnings and amounts withheld

16. What is the difference between a payroll register and an employee’s earnings record? Pg. 351, 369
Payroll register show information for all employees for ONE pay period.
Employee Earnings Record shows information for ONE employee for ONE QUARTER.
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17. How is accumulated earnings calculated? pg. 354

Previous Accumulated Earnings plus total earnings of the current pay period

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STANDARD 4: STUDENTS WILL DEMONSTRATE THE ABILITY TO HANDLE UNCOLLECTIBLE ACCOUNTS/BAD DEBTS.

1. Explain the allowance method for dealing with uncollectible accounts. Pg.515
Estimating a percentage of all accounts receivable as uncollectible

2. Why is an entry made in the Item column of the customer account when a customer’s account is written off?
To show they didn’t pay their debts; their account was written off pg. 520

3. Describe the two journal entries needed to record the collection of an account that was previously written off.
Pg. 521-522
1) Reopen the account
2) Record the cash received

4. Under the allowance method, which two general ledger accounts are affected by the adjusting entry to record
the estimated uncollectible accounts expense for the period? pg. 517
DEBIT Uncollectible Accounts Expense
CREDIT Allowance for Uncollectible Accounts

5. What is the classification of the account Allowance for Uncollectible Accounts? Pg. 517
Contra-asset (contra to Accounts Receivable)

6. How is the book value of accounts receivable determined? Pg. 519

Accounts Receivable – Allowance for Uncollectible Accounts

7. Describe one method that can be used to estimate the uncollectible accounts expense. Pg.515
% of Total Sales on Account

8. If a company had net sales of $630,000 and estimates that its uncollectible accounts will be 2 percent of net
sales, what is the amount of the adjustment? Pg. 515
$12, 600

STANDARD 5: STUDENTS WILL DEMONSTRATE AND EXPLAIN THE PRINCIPLES FOR HANDLING DEPRECIATION OF
ASSETS.

1. What distinguishes a plant asset from a current asset? Pg. 534

Plant assets are held for longer than a year; current assets are disposed or converted to cash within one year

2. What is depreciation? Why is it necessary to record depreciation expense for plant assets? Pg. 538, 543
Depreciation is the value of plant assets lost over time; to accurately report expenses

3. What three factors are considered when calculating annual depreciation expense of a plant asset using the
straight-line method? Pg. 538
Original Cost, Est. Salvage Value, Est. Years of Useful Life

4. What is the formula to calculate annual depreciation expense using the straight-line method? How is this
formula different when an asset is purchased in the middle of the year? Pg. 538-539
Annual Depreciation = (Original Cost – Salvage Value)/Years of Useful Life
Monthly Depreciation = Annual Depr./12 Multiply by number of months used
5. When is the depreciation of a plant asset recorded? Pg. 543
At the end of the year (fiscal period)

6. Which two accounts are affected, and how, by an adjusting entry for depreciation? Pg. 543
DEBIT Depreciation Expense
CREDIT Accumulated Depreciation
7. What is the classification of the Accumulated Depreciation account? Pg.544
Contra-asset (contra to the related equipment account)
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STANDARD 6: STUDENTS WILL PREPARE ADJUSTING ENTRIES AND FINANCIAL STATEMENTS.

1. Why is a work sheet completed before the financial statements are prepared? Pg. 430
To organize the general ledger account information; to see if debits and credit are equal

2. What is the purpose of the trial balance? Pg. 409

To make sure debits equal credits

3. Why is it necessary to make adjustments to some general ledger accounts at the end of the fiscal period?
To transfer the costs of the assists consumed from the assets account. Pg. 523

4. List the eight adjustments made for a corporation at the end of the fiscal period.
Supplies, prepaid insurance, federal corporate income tax, merchandising, inventory, income summary, supply
expense, insurance expense, and federal corporate income tax expense. Pg. 518-521

5. Which accounts are included on the Balance Sheet section of the work sheet?
Balance of all temporary accounts. Pg. 534

6. Which accounts are included on the Income Statement section of the work sheet?
Balance of all temporary accounts. Pg. 534

7. How does stockholders’ equity differ from owner’s equity?

Capital stocks represent investing in the corporation by stockholders. Pg. 552

8. What three financial statements are prepared by a merchandising corporation?

Balance sheets, statement of retained earnings and statement of cash flow. Pg. 565-569

9. How does an income statement for a merchandising business differ from that for a service business?
Merchandise bought and cost of merchandise that is purchased and re-sold to customers. Pg. 560

10. How is net sales calculated? Net purchases?

Amount of sales – discounts – returns and allowance
Net : Purchas transportation in – purchased discount – purchased return & allowance.

11. What is the difference between the cost of merchandise available for sale and the cost of merchandise sold?
Merchandise sold is the cost to the business off the merchandise being sold. Pg. 561

12. How is the cost of merchandise sold calculated?

Merchandise for sale > ending merchandise inventory cost. Pg. 562

13. Why is the net income for the period added to Retained Earnings rather than to Capital Stock?
Capital stock is investments made in the corporation
Retained earnings are total profits & made by the company. Pg.568

14. Why is the income statement prepared before the statement of stockholders’ equity? Why is the statement
of stockholders’ equity prepared before the balance sheet?
- Income statement shows net income, net income is needed for the statement of stock holders
entertainment. - Dividends goes on balance sheet & you get the from stock holders worksheet.
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STANDARD 7: STUDENTS WILL PREPARE CLOSING ENTRIES AND A POST-CLOSING TRIAL BALANCE.

1. What is the purpose of closing entries?

To close out temporary accounts in order to begin new accounting period.

2. Where can you find the information needed to prepare the closing entries?
Off the worksheet. Pg. 561

3. Explain the four closing entries necessary for a corporation.

Temporary accounts with credit balance sheets > income summary

Temporary accounts with the debit balance > income summary

Income summary > capital withdrawal > capital.

Pg.592

4. Why is Retained Earnings credited when the business earns a profit(net income)?
Because retained earnings goes to stock holders & they own them all.

5. Why is Retained Earnings debited when the business has a net loss?
Because retained earnings have a credit balance so when it is decreased it has a debit balance.

6. Which type of general ledger accounts appear on the post-closing trial balance? On which financial statement
do these accounts appear?
 Permeate accounts.
 Balance sheets.

7. Does the Income Summary account appear on the post-closing trial balance? Why or why not?
No because it’s temporary.

8. List the nine steps of the accounting cycle.

1. Collect and verify source document
2. Analyze each transaction
3. Generalize each transaction
4. Post to general and subsidiary ledgers
5. Repeat trial balance
6. Complete a worksheet
7. Prepare financial statements
8. Generalize and post-closing trial balance