Download Test 1, Spring 1997 - College of Business Administration

Accounting 303
Test 1
Spring 1997
Name __________________________
Section _______
Row _______
I.
Multiple Choice - (2.5 points each, 50 points total) Read
each question carefully, and indicate your answer by
circling the letter preceding the one best answer.
1.
Which characteristic applies more to managerial accounting
than to financial accounting?
a.
primarily historical information is used
b.
generally accepted accounting principles are the main
source of authority
c.
the unit reported upon is usually the total enterprise
d.
timeliness is often more important than accuracy
2.
The FASB concluded that the general objective of financial
reporting is to
a.
provide information useful in the decisions of external
users.
b.
meet the needs of internal users.
c.
provide information about an entity's earnings.
d.
provide information about an entity's cash flows.
3.
The state legislature is currently debating a bill which, if
passed, would require the Sandiken Company to go out of
business. Which of the following principles or assumptions
related to the preparation of Sandiken's financial statements
is most directly affected by this impending vote of the
legislature?
a.
going concern assumption
b.
verifiability principle
c.
economic entity concept
d.
materiality concept
4.
Daken Corporation has adopted the policy of charging to
expense at the time of purchase all assets having a cost of
less than $100, regardless of the life expectancy of the
asset. This policy is most closely related to the
a.
historical cost principle.
b.
periodicity assumption.
c.
verifiability principle.
d.
materiality principle.
5.
A company that uses different accounting methods in preparing
its tax returns as compared to the accounting methods used to
prepare its financial statements is
a.
in violation of the consistency principle.
b.
probably violating neither the income tax laws nor
generally accepted accounting principles.
c.
probably guilty of tax evasion.
d.
in violation of the relevance assumption.
6.
Based on the FASB's Conceptual Framework, when evaluating the
reliability of data, which of the following need not be
considered?
a.
neutrality
b.
verifiability
c.
timeliness
d.
representational faithfulness
7.
Which accounts are increased with credits?
a. Cost of Goods Sold, Common Stock, Assets
b. Sales Discounts, Revenue, Liabilities
c. Assets, Cost of Goods Sold, Sales Discounts
d. Liabilities, Common Stock, Revenue
8. A prepaid expense is
a.
payment received by the company in advance for the
future sale of inventory or performance of services.
b.
an item of goods or services purchased by the company
for use in its operations but not fully consumed by the
end of the accounting period.
c.
an expense that has been incurred during the accounting
period but has neither been paid nor recorded.
d.
an item that has been earned by the company during the
accounting period but has been neither received nor
recorded.
9.
Review of a company's Rental Revenue account shows that $800
of the account balance has not been earned as of the current
year-end date. The necessary adjusting entry will
a.
credit a liability account for $800.
b.
debit an asset account for $800.
c.
credit a revenue account for $800.
d.
credit an asset account for $800.
10.
Which error will a trial balance detect?
a.
posting a credit to sales instead of to accounts payable
b.
incorrectly computing the balance of the cash account
c.
not journalizing a complete sales transaction
d.
forgetting to post a complete purchase transaction
11.
On May 1, 1997, Mentor Corp. borrowed $5,000 on a two-year,
6% note payable. Interest is due and payable at the end of
each six months. Mentor Corp. makes all interest payments on
schedule. The correct December 31, 1997 adjusting entry
would be
a.
b.
c.
d.
Interest Expense
Interest Payable
50
50
Interest Payable
Cash
200
Interest Expense
Cash
50
Interest Expense
Interest Payable
200
50
200
200
12.
Posting is the procedure of taking information from the
a.
journal to the ledger.
b.
trial balance to the worksheet.
c.
ledger to the journal.
d.
worksheet to the financial statements.
13.
Which of the following transactions would be recorded in a
sales journal of the type used in this class?
a.
customer return of merchandise originally bought on
credit
b.
customer purchase of merchandise for cash
c.
sale by a used car dealer of part of the property
surrounding his display lot
d.
customer purchase of merchandise on credit terms
14.
The ease with which an asset can be converted into cash is
termed
a.
solvency
b.
liquidity
c.
operating capability
d.
capital maintenance
15. To be
meet
a.
b.
c.
d.
recognized in the financial statements, an item must
the definition of an element and be
measurable, understandable, and relevant.
reliable, measurable, and realized.
realized, relevant, and reliable.
relevant, measurable, and reliable.
16.
Which measurement alternative is in use if an asset is
measured by the amount of cash (or its equivalent) into which
it is expected to be converted in due course of business less
direct costs necessary to make that conversion?
a.
current exit value
b.
current replacement cost
c.
net realizable value
d.
present value
17.
The valuation method primarily used in the balance sheets of
business entities is
a.
current exit value.
b.
historical cost.
c.
present value.
d.
net realizable value.
18.
Current assets are cash or other assets that are reasonably
expected to be converted into cash, sold, or consumed within
a.
one year.
b.
one year or normal operating cycle, whichever is
shorter.
c.
one year or normal operating cycle, whichever is longer.
d.
one normal operating cycle.
19.
Which of the following is the best description of par value?
a.
the price at which the stock is initially sold
b.
c.
d.
the amount of dividends that will be paid each year to
the stockholder
an arbitrary value assigned to the stock at the
inception of the corporation
a value assigned to the stock to facilitate its
recording in the accounting books
20. Which of the following characteristics is not an advantage of
the corporate form of business over the partnership form of
business?
a.
limited liability
b.
ease of transferability of ownership interests
c.
double taxation
d.
ability to accumulate large sums of capital
II.
1.
A.
Problems - Show your work as appropriate.
(12 points) This problem contains matching questions and
consists of two unrelated parts.
Match the letter preceding the answer choices with the
questions, and record your answer in the space provided. An
answer may be used once, more than once, or not at all.
Answer Choices:
A. AAA
E. FASB
B. AICPA
F. GAO
C. APB
G. IRS
D. CAP
H. SEC
Questions:
1.
_____ This organization has congressional authority to
prescribe accounting principles and practice.
2.
_____ This organization has the current authority to
issue Statements that become GAAP.
B.
3.
_____ This organization existed from 1959 to 1973 and
issued 31 opinions.
4.
_____ This organization is a national level, voluntary
organization that CPAs can join and is very
influential in all areas of the accounting
profession.
Match the letter preceding the answers choices with the
questions, and record your answer in the space provided.
answer may be used once, more than once, or not at all.
An
Answer Choices:
A. Cost benefit assumption
B. Entity assumption
C. Going-concern assumption
D. Historical-cost assumption
E. Materiality assumption
F. Monetary-unit assumption
G. Periodicity assumption
Questions:
1. _____
2.
Assumes that a business will continue into the
future.
_____ Separates financial information into specific time
periods for reporting purposes.
3. ______ Assumes that the dollar is the measuring stick used
to report financial information.
4.
2.
_____ Indicates the activity of a business should be kept
separate from its owners.
(10 points) For each of the accounts listed below, indicate
the section of the balance sheet in which it would be
reported (if any), by matching the letter preceding the
balance sheet section with the account name. Indicate contra
accounts by enclosing your response in parentheses.
Balance Sheet Sections:
A.
B.
C.
Current Assets
Investments
Property, Plant and Equipment
D.
E.
F.
G.
X.
Intangible Assets
Current Liabilities
Long-Term Liabilities
Stockholders' Equity
Not Reported in Balance Sheet
Accounts:
3.
_____
Accounts Payable
_____
Accumulated Depreciation
_____
Additional Paid-in Capital
_____
Allowance for Bad Debts
_____
Bonds Payable, due December 31, 2014
_____
Common Stock
_____
Inventory
_____
Land
_____
Sales
_____
Unearned Service Revenue
(16 points) For each of the following items, prepare the
December 31, 1997, year-end adjusting entry in general
journal format, or indicate that an adjusting entry is not
necessary.
(a)
On August 31, 1997, a two-year comprehensive insurance
policy was purchased for $2,700. The payment was
debited to Prepaid Insurance.
(b)
On December 1, 1997, a customer paid $1,000 in advance
for services to be performed in January 1998. The
payment was credited to Unearned Revenue.
(c)
On January 1, 1997, the Office Supplies account had a
$500 balance. Supplies costing $2,000 were purchased
during the year. At December 31, 1997, an inventory
count showed $600 of supplies on hand.
(d)
Straight-line depreciation is used for a building
purchased in 1987 for $50,000, with an expected life of
30 years and an estimated salvage value of $5,000.
(e)
Make the inventory and cost-of-goods sold adjustment
assuming a periodic inventory system is used, and
beginning inventory was $75,000, net purchases were
$875,000, and ending inventory was $87,000.
4.
(12 points) The December 31, 1996, trial balance for Lance
Deal Company is as follows:
Debit
Credit
Cash . . . . . . . . . . . . . . . .$
32,300
Accounts Receivable. . . . . . . . .
97,800
Allowance for Bad Debts. . . . . .
$
1,600
Inventory. . . . . . . . . . . . . .
122,600
Prepaid Expenses . . . . . . . . . .
16,000
Land . . . . . . . . . . . . . . . .
58,200
Building . . . . . . . . . . . . . .
348,400
Accumulated Depreciation . . . . . .
148,400
Equipment. . . . . . . . . . . . . .
621,600
Accumulated Depreciation . . . . . .
82,600
Intangible Assets. . . . . . . . . .
84,900
Accounts Payable . . . . . . . . . .
62,300
Taxes Payable. . . . . . . . . . . .
10,100
Short-term Notes Payable . . . . . .
20,000
Long-term Debt (due 2007). . . . . .
110,000
Common Stock ($10 par) . . . . . . .
70,000
Paid-in Capital. . . . . . . . . . .
114,400
Retained Earnings (12/31/95) . . . .
603,700
Sales. . . . . . . . . . . . . . . .
1,692,400
Cost-of-Goods Sold . . . . . . . . .
902,900
Administrative Expenses. . . . . . .
158,600
Selling Expenses . . . . . . . . . .
472,200
----------------$ 2,915,500 $ 2,915,500
=========
=========
Required: Determine each of the following:
a.
Working Capital
b.
Current Ratio
c.
Debt Ratio
d.
December 31, 1996, Retained Earnings
Answers
Multiple Choice
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
d
a
a
d
b
c
d
b
a
b
a
a
d
b
d
c
b
c
c
c
Problems
1.
1.
2.
3.
4.
Part A
H
E
C
B
2.
E
(C)
1.
2.
3.
4.
Part B
C
G
F
B
Accounts Payable
Accumulated Depreciation
G
(A)
F
G
A
C
X
E
3.
(a)
Insurance Expense
Prepaid Insurance
450
450
(b)
No adjustment needed.
(c)
Supplies Expense
Office Supplies
1,900
Depreciation Expense
Accumulated Depreciation
1,500
(d)
(e)
4.
Additional Paid-in Capital
Allowance for Bad Debts
Bonds Payable, due December 31, 2014
Common Stock
Inventory
Land
Sales
Unearned Service Revenue
1,900
Inventory
Cost of Goods Sold
Purchases
Inventory
87,000
863,000
875,000
75,000
a.
267,100 - 92,400 = 174,700
b.
267,000 / 92,400 = 2.89
c.
202,400 / 1,149,200 = 17.6%
d.
Sales
Exp
NI
1,692,400
1,533,700
--------158,700
=========
1,500
1-1 RE
NI
12-31 RE
603,700
158,700
------762,400
=======