Number:______ Test AEM 221: Financial Accounting Prelim #1 Fall 2007
Full Name:__________________________________________________________ Netid:______________________ TA:________________________
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Signature: ______________________________________
Date: ___________
Failure to sign the above Academic Integrity statement will result in a grade of zero on this exam. See next page for test instructions.
Points Scored Part I Part II Multiple Choice & True/False Problem 1 Problem 2 Problem 3 Problem 4 Problem 5 Part II Subtotal Total
Points Available 40 14 12 10 11 13 40 100
Test Instructions
Failure to follow any of the instructions below may result in a grade of zero on the exam, without question.
1. Bubble your three digit test number in boxes NOP of your scantron; if you have a single digit test number such as 1 bubble in 001, if you have a double digit test number such as 20 bubble in 020. Again, add zeros to the beginning of your test number if your test number is less than 3 digits. 2. Write your name and test number in the space provided on the bottom of each page. 3. Your answers to Part I should be transposed to an optical sheet in pencil. Failure to do so will result in zero credit for this section. 4. Your written work for Part II should be completed in the spaces provided. You will lose points for arithmetic errors; please be careful. 5. The answer spaces for Part II provide more space than may be necessary to complete the problem. 6. There are 14 pages in this packet, including this cover page; it is your responsibility to ensure that you have all 14 pages. 7. This exam is not to leave the testing room. 8. Read carefully and good luck!
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Part I: Multiple Choice (2 pts. each) & True/False(1 pt. each) All answers for Part I must be transcribed on the scantron sheet, only scantron answers will be graded.
Choose the answer choices [#s 1 and 2] which most accurately complete the sentence below: When preparing the financial statements [1] from the income statement is recorded on the [2]. 1. A. B. C. D. [1] Retained Earnings Net Income Revenues Expenses
2. A. B. C. D.
[2] Balance Sheet Income Statement Statement of Cash Flows Statement of Retained Earnings
3. A. B. C. D. E.
The SEC charged Computer Associates International, Inc. with the following: Overstating the value of its long-term assets Overstating cash flows. Understating expenses. Reporting of fictitious sales. Prematurely recognizing revenues.
4. A. B. C. D. E.
What body is responsible for determining Generally Accepted Accounting Principles? Financial Accounting Standards Board (FASB) International Accounting Standards Board (IASB) Securities and Exchange Commission (SEC) Certified Public Accountants (CPAs) Auditing Standards Board (ASB)
5. In order for Financial Reporting to provide useful economic information it must, to some extent, possess the following qualitative characteristics (as defined by Libby): A. Relevancy and Reliability B. Comparability and Consistency C. Accuracy and Applicability D. A and B E. B and C Page 3 of 14
6.
Which of the following statements regarding the statement of cash flows is true: I. The ending cash balance must agree with the amount shown on the balance sheet for the same period. II. The total increase or decrease in cash must agree with the net income or net loss shown on the income statement for the same period. III. The statement of cash flows separates cash inflows into four major categories. I only II only III only I and II. I, II and III
A. B. C. D. E.
7. If a publicly traded company is trying to maximize its perceived value to decision makers external to the corporation, the company is most likely to: A. Overstate its expenses. B. Understate its assets. C. Understate its revenues. D. Overstate its liabilities. E. Understate its liabilities.
8. A. B. C. D.
When expenses exceed revenues in a given period: Retained earnings is not impacted. Retained earnings is decreased. Retained earnings is increased. More information is needed to determine the impact on retained earnings.
9. If a company is successful in reducing selling and administrative costs while maintaining sales volume and the sales price of its product, what is the effect on the net profit margin ratio? A. The ratio will increase. B. The ratio will decrease. C. The ratio will not change. D. Either A or C. E. More information is needed to determine the impact on the net profit margin ratio.
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10. If average total assets increase, but net income, net sales and average stockholders equity remain the same, what is the impact on the return on equity ratio? A. The ratio will increase. B. The ratio will decrease. C. The ratio will not change. D. Either A or C. E. More information is needed to determine the impact on the return on equity ratio.
3
11. On January 1, 2000 an individual invested $1,500,000 to form Ericas Store. In 2000, Erica had: total revenues of $400,000, total expenses of $150,000 and paid no dividends. In 2001, Erica had: total expenses of $400,000, paid $180,000 in dividends and had an ending balance in the stock holders equity account of $1,770,000. What were her total revenues for 2001? A. $200,000 B. $250,000 C. $600,000 D. $1,530,000 E. More information is needed to compute the total revenues for 2001.
12. Assume ZZs Companys January 1, 2005 financial position was: Liabilities, $350,000 and Stockholders Equity $50,000. During January 2005, the company completed the following transactions: (1) Purchased a truck, $13,000 note payable and $7,000 cash ; (2) Collected an account receivable, $5,000, from a customer; (3) Paid on a note payable, $10,000 (no interest was paid); (4) Paid an accounts payable $7,000; and (5) Katie invests $5,000 into ZZs Company. ZZs Companys January 31, 2005 financial position is: Assets A. $408,000 B. $403,000 C. $408,000 D. $401,000 Liabilities $358,000 $348,000 $353,000 $346,000 Stockholders Equity $50,000 $55,000 $55,000 $55,000
13. Which of Jacks financial statements would you look at to determine whether Jack will be able to pay for a good when payment for the good is due in 30 days? A. Statement of Cash Flows B. Balance Sheet C. Income Statement D. Statement of Retained Earnings Page 5 of 14
14. According to the Anatomy of a Financial Fraud article on blackboard, which of the following is NOT one of the identified relationships that investors and auditors should consider as early warning signs of abusive earnings management? Careful A. timing of capital gains and losses. B. Acquisitions with no apparent business purpose. C. Earnings that consistently and precisely meet analysts expectations. D. Reserves that are not correlated with balance sheet items. E. Allowances for uncollectible accounts that are not correlated with receivables.
15. Wolff, Co. paid a $500 cash dividend to its owners. Consider the following potential effects to Wolff, Co.s financial statements: (I) A decrease in revenues. (II) A decrease in cash. (III) An increase in equity. (IV) Increase in expenses. Which of the above choices are true effects? A. (I) and (III) B. (II) only C. (II) and (IV) D. (I), (II), and (IV) E. (I), (II), (III), and (IV)
16. Based on the blackboard readings, which company engaged in the cookie jar method of fraud: A. Enron B. Xerox C. Computer Associates International D. WorldCom E. HealthSouth Corporation
17. The four basic financial statements are only prepared for annual accounting periods. A. True B. False
18. If the market price is $1,500,000 and the P/E ratio is 12, the net income for the accounting period was $125,000. Page 6 of 14
A. True B. False 19. Assume a truck with a market value of $21,000 is purchased for $19,000 cash. The truck should be listed on the balance sheet at a value of $21,000. A. True B. False
20. When a current liability is paid, cash would be credited. A. True B. False
21. If at the end of the accounting period the total of all the asset accounts is $450,000 and the total of all stockholder equity accounts is $300,000, then the total of all the liability accounts must be $750,000. A. True B. False
22. If you received $1,500 for services to be performed in the subsequent time period, you should record revenues of $1,500 for the current time period. A. True B. False
23. If a contra account for an asset increases the net book value of the asset reported on the balance sheet also increases. A. True B. False
24. An adjusting entry for accrued revenues requires a credit to an asset account. A. True B. False
The answers for # 1-24 need to be transcribed on your scantron!!!
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Part II: Problems
Problem 1:
Hillarys SuperStore, Inc., a huge retail store, opened and started business in Collegetown on January 1, 2006. At the end of Hillarys first month in business (January, 2006), the following information was available: Sales in cash Sales on credit (not yet collected) Cost of goods which were sold and paid for during January Expenditures during January: Salaries Telephone Electricity Bill for January 2006, not yet paid Office Supplies (all used) Rent on the store for January, 2006, not yet paid $205,000 54,000 130,000 35,000 450 425 130 900
(A) Using the above information, prepare a single step income statement for Hilarys SuperStore, Inc. for the month ended January 31, 2006. Assume a tax-free world. Hilarys SuperStore, Inc. Income Statement For the Month Ended January 31, 2006
Revenues:
Expenses:
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(B) What is the amount of net cash flows provided by operating activities to be presented on the statement of cash flows? Please show your work and write your answer in the box provided. $
Problem 2:
Below are three transactions (i, ii and iii) that were completed during 1999 by Seans Store. The annual accounting period ends on December 31. You are to record the indicated journal entry. Also, each transaction may require an adjusting entry on December 31, 1999; you are to provide the appropriate 1999 adjusting entries for Seans Store in the space provided on the next page. If no entry is required, indicate so. (i) On July 1, 1999, Seans Store paid $28,000 for a four-year insurance premium for a policy on its facilities. Record the appropriate journal entry for July 1, 1999.
July 1, 1999:
Debit
Credit
(ii) On September 1, 1999, Seans Store borrowed $55,000 cash and signed a one-year note payable. The total interest of $5,500 is payable on the due date, August 31, 2000. Record the appropriate journal entry for September 1, 1999.
September 1, 1999
Debit
Credit
(iii) On October 1, 1999, Seans Store collected $4,500 from Rich as advance payment for magazine subscriptions for the next 3 years (including October 1999). Record the appropriate journal entry for Seans Apartments on October 1, 1999
October 1,1999:
Debit
Credit
Space for writing adjusting entries is on the next page
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Record the Adjusting entries for December 31, 1999:
(i)
(ii)
(iii)
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Problem 3: Erics Company was established January 2, 2009 when several investors paid a total of $400,000 to purchase Erics Company stock. No additional investments in stock were made. At the end of the year, Erics Company had cash on hand of $195,000, office equipment (net) of $45,000, inventories of $230,000, and accounts payable of $13,000. He also has a $30,000 3-year interest-free note. Sales for the year were $812,000. Of this amount, customers still owed $20,000. Total expenses were $730,000. Fulton paid dividends of $35,000.
(A) Prepare a classified balance sheet for Erics Company as of December 31, 2009. Erics Company Balance Sheet At December 31, 2009 (in dollars)
Assets
Liabilities
Stockholders equity
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Problem 4:
The following information was taken from the books of Stephanie Corporation. Partial List of Accounts and Balances as of December 31, 2005: Common Stock $5,000 Accounts Payable 1,000 Equipment 9,000 Supplies 500 Consulting Revenue 12,000 Supplies Expense 700 Dividends 2,000 Utilities Expense 1,000 Cash 1,000 Salaries Expense 5,000 Accounts Receivable 2,000 Rent Expense 3,000 (A.) Prepare the necessary closing entries in general journal form. General Journal Account Title Debit Credit
(B.) Assuming the balance of Retained Earnings prior to closing was $1,700, what is its balance immediately after closing? Please show your work and write your answer in the box provided.
$
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Problem 5:
Record the general journal entries for the following transactions incurred by Erin Co.: Assume all events happened this morning. (A) Purchased land for $125,000 by paying $20,000 in cash and issuing a note for the balance. (B) Collected $34,000 in advance for services to be provided over the next 12 months. (C) Borrowed $32,000 cash on a five year, 12% note payable, dated April 1, 2003 (D) Sold 1,500 additional shares of capital stock for $2 cash per share (E) Sold inventory for $74,000, receiving cash. Inventory cost was $30,000.
Event: A.
General Journal Account Title
Debit
Credit
B.
C.
D.
E.
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DO NOT REMOVE THIS PAGE FROM THE EXAM BOOK. PAGE INTENTIONALLY LEFT BLANK FOR YOU TO DO WORK.
DO NOT REMOVE THIS PAGE FROM THE EXAM BOOK.
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