University Temple Fox School of Business and Management Dr. Steven Balsam
Accounting 011 Exam #1- answer key February 12, 2004
Instructions: You have 150 minutes. Answer the questions on the pages provided and please remember to show all work so that you may receive partial credit. Also please put your name on each page in case the pages get separated. Good luck!
Multiple Choice (2.5 points each 50 points total please include answers on answer sheet). 1. Companies that are listed on a stock exchange are required to submit their financial statements to the a. AICPA. b. APB c. FASB. d. SEC.
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Posting is the process of transferring items entered in a general journal to the a. Worksheet b. Trial balance c. General ledger d. Financial Statements Investors and creditors can use the information in the income statement to a. Evaluate the past performance of the enterprise. b. Provide a basis for predicting future performance c. Help assess the risk or uncertainty of achieving future cash flows d. All of these. A change in depreciation from the double-declining to the straight-line method would be accounted for as a (an) a. Part of discontinued operations b. Extraordinary item c. Change in accounting principle d. Change in estimate Earnings per share is computed as net income a. Divided by the weighted average of common shares outstanding. b. Minus preferred dividends divided by the weighted average of common shares outstanding. c. Divided by the ending common shares outstanding. d. Minus preferred dividends divided by the ending common shares outstanding. The FASB decided that the components of other comprehensive income must be displayed a. In a second separate income statement. b. In a combine income statement of comprehensive income. c. As a part of the statement of stockholders' equity. d. Any of these options is permissible.
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Which of the following is an important advantage of using cost over other possible valuations? a. Reliability b. Objectivity c. Verifiability d. All of the above
Unearned revenues are classified as: a. Assets b. Liabilities c. Revenues d. Stockholders' equity
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Which of the following is a limitation of the balance sheet? a. Many items that are of financial value are omitted. b. Judgments and estimates are used. c. Current fair value is not reported. d. All of these Under which of the following conditions would material flood damage be considered an extraordinary item for financial reporting purposes? a. Only if floods in the geographical area are unusual in nature and occur infrequently. b. Only if the flood damage is material in amount and could have been reduced by prudent management. c. Under any circumstances as an extraordinary item. d. Flood damage should never be classified as an extraordinary item. A review of the December 31, 2004, financial statements of Benes Corporation revealed that under the caption "extraordinary losses," Benes reported a total of $246,000. Further analysis revealed that the $246,000 in losses was comprised of the following items: (1) Benes recorded a loss of $60,000 incurred in the abandonment of equipment formerly used in the business. (2) In an unusual and infrequent occurrence, a loss of $140,000 was sustained as a result of hurricane damage to a warehouse. (3) During 2004, several factories were shut down during a major strike by employees, resulting in a loss of $34,000. (4) Uncollectible accounts receivable of $12,000 were written off as uncollectible. Ignoring income taxes, what amount of loss should Benes report as extraordinary on its 2004 income statement? a. $60,000. b. $140,000. c. $200,000. d. $246,000.
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Use the following information for questions 12 and 13. Falley Corp.'s trial balance of income statement accounts for the year ended December 31, 2004 included the following: Debit Credit Sales Cost of sales Administrative expenses Loss on sale of equipment Commissions to salespersons Interest revenue Freight-out Loss due to fire damage (unusual & infrequent) Bad debt expense Totals Other information: Falley's income tax rate is 30%. Finished goods inventory: January 1, 2004 December 31, 2004 $160,000 140,000 $280,000 $120,000 50,000 18,000 20,000 10,000 6,000 30,000 6,000 $250,000 $290,000
On Falley 's multiple-step income statement for 2004, 12. Income before extraordinary item is a. $70,000. b. $40,000. c. $49,000. d. $28,000. Extraordinary loss is a. $21,000. b. $30,000. c. $33,600. d. $48,000. When an item of expense is paid and recorded in advance, it is normally called a(n) a. prepaid expense. b. accrued expense. c. estimated expense. d. cash expense. When an item of revenue is collected and recorded in advance, it is normally called a(n) ___________ revenue. a. accrued b. prepaid c. unearned d. cash
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If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve a a. liability account and an asset account. b. an asset or contra asset account and an expense account. c. a liability account and an expense account. d. a receivable account and a revenue account. Forbes Company paid $7,200 on June 1, 2004 for a three-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2004 adjusting entry is a. debit Insurance Expense and credit Prepaid Insurance, $1,400. b. debit Insurance Expense and credit Prepaid Insurance, $5,800. c. debit Prepaid Insurance and credit Insurance Expense, $1,400 d. debit Prepaid Insurance and credit Insurance Expense, $5,800. Lane Company purchased equipment on November 1, 2004 and gave a 3month, 9% note with a face value of $50,000. The December 31, 2004 adjusting entry is a. debit Interest Expense and credit Interest Payable, $4,500. b. debit Interest Expense and credit Interest Payable, $1,125. c. debit Interest Expense and credit Cash, $750. d. debit Interest Expense and credit Interest Payable, $750. When a line of business is discontinued or disposed of, the results of its operations must be: a. Reported as part of operating income b. Reported separately on the income statement as income from discontinued operations c. Reported as an extraordinary item d. None of the above Comprehensive income includes net income and which of the following items: a. Unrealized Holding Gains (Losses) on Available for Sale Securities b. Gains/Losses Foreign Currency Translation c. Adjustments for Additional Minimum Pension Liability d. All of the above
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Accounting Cycle Problem (50 points)
Beta Alpha Psi decided to sell food during the Spring fling. The following transactions occurred during the month of March March 1 Purchased hot dogs, chips, & soda (inventory) on account (to be paid later) for $500. 1 Rented a grill for $50 a month (to be paid later). 1 Placed advertisement in campus newspaper at cost of $25 (to be paid later). 1 Purchased a table for use at this and other events. Cost $60, which is paid immediately. Assume table has a useful life of five years and no residual or salvage value. 30 Sales (all cash) for the month totaled $1,300. Cost of goods sold totaled $450.
Required: 1. Prepare the journal entries for the above transactions 2. Post the entries to the following accounts: i. Cash (beginning balance $1,500) ii. Inventory iii. Fixed Assets iv. Accumulated Depreciation v. Accounts Payable vi. Stockholders Equity (beginning balance $1,500) vii. Cost of Goods Sold viii. Advertising Expense ix. Depreciation Expense x. Rent Expense xi. Revenue 3. Prepare all necessary adjusting entries. 4. Prepare a trial balance at the end of March. 5. Prepare all necessary closing entries. 6. Prepare the following i. income statement ii. balance sheet iii. statement of owners equity
Use this page for your journal entries March 1 Inventory Accounts Payable Rent Expense Accounts Payable Advertising Expense Accounts Payable Fixed Assets Cash March 31 Cash Revenue Cost of Goods Sold Inventory March 31 - Adjusting Entries Depreciation Expense Accumulated Depreciation March 31 Closing Entries Revenue Income Summary Income Summary Rent Expense Advertising Expense Depreciation Expense Cost of Goods Sold Income Summary Stockholders Equity $450 $450 $1 $1 $1,300 $1,300 $526 $50 $25 $1 $450 $774 $774 $1,300 $1,300 $60 $60 $25 $25 $50 $50
$500 $500
Use this page for your ledger accounts Cash Debit 1,500 (Beginning Balance) 1,300 (March 31) Inventory Debit 500 (March 1) Fixed Assets Debit 60 (March 1) Accumulated Depreciation Debit Credit 1 (March 31) Accounts Payable Debit Credit 500 (March 1) 50 (March 1) 25 (March 1) Stockholders Equity/Retained Earnings Debit Credit 1,500 (Beginning Balance) 774 (Closing Entry) Cost of Goods Sold Debit 450 (March 31) Advertising Expense Debit 25 (March 1) Rent Expense Debit 50 (March 1) Depreciation Expense Debit 1 (March 31) Revenue Debit 1,300 (Closing Entry) Credit 1,300 (March 31) Credit 1 (Closing Entry) Credit 50 (Closing Entry) Credit 25 (Closing Entry) Credit 450 (Closing entry) Credit Credit 450 (March 31) Credit 60 (March 1)
Use this page for your trial balance
Pre-closing Trial Balance Debit Cash Inventory Fixed Assets Accumulated Depreciation Accounts Payable Stockholders Equity Cost of Goods Sold Rent Expense Advertising Expense Depreciation Expense Revenue Total 2,740 50 60 1 575 1,500 450 50 25 1 ______ 3,376 Credit
1,300 3,376
Use this page for your income statement Revenue Less Cost of Goods Sold Rent Expense Advertising Expense Depreciation Expense Net Income 1,300 450 50 25 1 774
Use this page for your statement of owner's equity Beginning Balance Investment Net Income Less: Dividend Ending Balance Use this page for your balance sheet Assets Cash Inventory Fixed Assets (net of accumulated depr.) Total Assets Liability Accounts Payable Stockholders Equity Total Liabilities + Stockholders Equity 1,500 0 774 0 2,274
2,740 50 59 2,849 575 2,274 2,849