Examination
AC201
Summer Final 2012
1. A record of the increases and decreases in a specific asset, liability, equity, revenue, or
expense is a(n):
A. Journal.
B. Posting.
C. Trial balance.
D. Account.
E. Chart of accounts.
2. Which of the following statements is correct?
A. When a future expense is paid in advance, the payment is normally recorded in a liability
account called Prepaid Expense.
B. Promises of future payment are called accounts receivable.
C. Increases and decreases in cash are always recorded in the owner's capital account.
D. An account called Land is commonly used to record increases and decreases in both the land
and buildings owned by a business.
E. Accrued liabilities include accounts receivable.
3. A collection of all accounts and their balances used by a business is called a:
A. Journal.
B. Book of original entry.
C. General Journal.
D. Balance column journal.
E. Ledger.
4. Hal Smith opened Smith's Repairs on March 1 of the current year. During March, the
following transactions occurred and were recorded in the company's books:
Smith invested $25,000 cash in the business.
2. Smith contributed $100,000 of equipment to the business.
3. The company paid $2,000 cash to rent office space for the month.
4. The company received $16,000 cash for repair services provided during March.
5. The company paid $6,200 for salaries for the month.
6. The company provided $3,000 of services to customers on account.
7. The company paid cash of $500 for monthly utilities.
8. The company received $3,100 cash in advance of providing repair services to a customer.
9. Smith withdrew $5,000 for his personal use from the company.
Based on this information, net income for March would be:
A. $10,300.
B. $13,400.
C. $5,300.
D. $8,400.
E. $13,500.
5. If a company mistakenly forgot to record depreciation on office equipment at the end of an
accounting period, the financial statements prepared at that time would show:
A. Assets overstated and equity understated.
B. Assets and equity both understated.
C. Assets overstated, net income understated, and equity overstated.
D. Assets, net income, and equity understated.
E. Assets, net income, and equity overstated.
6. On April 30, a three-year insurance policy was purchased for $18,000 with coverage to begin
immediately. What is the amount of insurance expense that would appear on the company's
income statement for the year ended December 31?
A. $500.
B. $4,000.
C. $6,000.
D. $14,000.
E. $18,000.
7. A company pays each of its two office employees each Friday at the rate of $100 per day for a
five-day week that begins on Monday. If the monthly accounting period ends on Tuesday and the
employees worked on both Monday and Tuesday, the month-end adjusting entry to record the
salaries earned but unpaid is:
A. Debit Unpaid Salaries $600 and credit Salaries Payable $600.
B. Debit Salaries Expense $400 and credit Salaries Payable $400.
C. Debit Salaries Expense $600 and credit Salaries Payable $600.
D. Debit Salaries Payable $400 and credit Salaries Expense $400.
E. Debit Salaries Expense $400 and credit Cash $400.
8. A company purchased a new truck at a cost of $42,000 on July 1. The truck is estimated to
have a useful life of 6 years and a salvage value of $3,000. The company uses the straight-line
method of depreciation. How much depreciation expense will be recorded for the truck during
the first year ended December 31?
A. $3,250.
B. $3,500.
C. $4,000.
D. $6,500.
E. $7,000.
9. A company's Office Supplies account shows a beginning balance of $600 and an ending
balance of $400. If office supplies expense for the year is $3,100, what amount of office supplies
was purchased during the period?
A. $2,700.
B. $2,900.
C. $3,300.
D. $3,500.
E. $3,700.
10. A classified balance sheet:
A. Measures a company's ability to pay its bills on time.
B. Organizes assets and liabilities into important subgroups.
C. Presents revenues, expenses, and net income.
D. Reports operating, investing, and financing activities.
E. Reports the effect of profit and withdrawals on owner's capital.
11. The Unadjusted Trial Balance columns of a work sheet total $84,000. The Adjustments
columns contain entries for the following:
1. Office supplies used during the period, $1,200.
2. Expiration of prepaid rent, $700.
3. Accrued salaries expense, $500.
4. Depreciation expense, $800.
5. Accrued service fees receivable, $400.
The Adjusted Trial Balance columns total is:
A. $80,400.
B. $84,000.
C. $85,700.
D. $85,900.
E. $87,600.
12. J. Awn, the proprietor of Awn Services, withdrew $8,700 from the business during the
current year. The entry to close the withdrawals account at the end of the year is:
A. Debit J. Awn, Withdrawals $8,700; credit Cash, $8,700
B. Debit J. Awn, Capital $8,700; credit J. Awn, Withdrawals $8,700
C. Debit J. Awn, Withdrawals $8,700; credit J. Awn, Capital $8,700
D. Debit J. Awn, Capital $8,700, credit Salary Expense $8,700
E. Debit Income Summary $8,700; credit J. Awn, Capital $8,700
13. At the beginning of the year, a company's balance sheet reported the following balances:
Total Assets = $125,000; Total Liabilities = $75,000; and Owner's Capital = $50,000. During the
year, the company reported revenues of $46,000 and expenses of $30,000. In addition, owner's
withdrawals for the year totaled $20,000. Assuming no other changes to owner's capital, the
balance in the owner's capital account at the end of the year would be:
A. $66,000.
B. $86,000.
C. $(4,000).
D. $46,000.
E. $54,000.
14. A company uses the perpetual inventory and system recorded the following entry
This entry reflects a:
A. Purchase of merchandise on credit.
B. Return of merchandise.
C. Sale of merchandise on credit.
D. Payment of the account payable and recognition of a 2% cash discount taken.
E. Payment of the account payable and recognition of a 1% cash discount taken.
15. A company purchased $1,800 of merchandise on December 5. On December 7, it returned
$200 worth of merchandise. On December 8, it paid the balance in full, taking a 2% discount.
The amount of the cash paid on December 8 equals:
A. $200.
B. $1,564.
C. $1,568.
D. $1,600.
E. $1,800.
16. On December 31 of the current year, Hewett Company reported an ending inventory balance
of $215,000. The following additional information is also available:
Hewett sold goods costing $38,000 to Trump Enterprises on December 28 and shipped the goods
on that date with shipping terms of FOB shipping point. The goods were not included in the
ending inventory amount of $215,000 because they were not in Hewett's warehouse.
Hewett purchased goods costing $44,000 on December 29. The goods were shipped FOB
destination and were received by Hewett on January 2 of the following year. The shipment was a
rush order that was supposed to arrive by December 31. These goods were included in the ending
inventory balance of $215,000.
Hewett's ending inventory balance of $215,000 included $15,000 of goods being held on
consignment from Rumsfeld Company. (Hewett Company is the consignee.)
Hewett's ending inventory balance of $215,000 did not include goods costing $95,000 that were
shipped to Hewett on December 27 with shipping terms of FOB destination and were still in
transit at year-end.
Based on the above information, the correct balance for ending inventory on December 31 is:
A. $194,000
B. $209,000
C. $200,000
D. $171,000
E. $156,000
17. Physical counts of inventory:
A. Are not necessary under the perpetual system.
B. Are necessary to adjust the Inventory account to the actual inventory available .
C. Must be taken at least once a month.
D. Requires the use of hand-held portable computers.
E. Are not necessary under the cost-to benefit constraint.
18. Which of the following inventory costing methods will always result in the same values for
ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory
system is used?
A. FIFO and LIFO
B. LIFO and weighted-average cost
C. Specific identification and FIFO
D. FIFO and weighted-average cost
E. LIFO and specific identification
19. Thelma Company reported cost of goods sold for Year 1 and Year 2 as follows:
Thelma Company made two errors: 1) ending inventory at the end of Year 1 was understated by
$15,000 and 2) ending inventory at the end of Year 2 was overstated by $6,000. Given this
information, the correct cost of goods sold figure for Year 2 would be:
A. $291,000
B. $276,000
C. $264,000
D. $285,000
E. $249,000
20. On October 29 of the current year, a company concluded that a customer's $4,400 account
receivable was uncollectible and that the account should be written off. What effect will this
write-off have on this company's net income and total assets assuming the allowance method is
used to account for bad debts?
A. Decrease in net income; no effect on total assets.
B. No effect on net income; no effect on total assets.
C. Decrease in net income; decrease in total assets.
D. Increase in net income; no effect on total assets.
E. No effect on net income; decrease in total assets.
21. On December 31 of the current year, a company's unadjusted trial balance included the
following: Accounts Receivable, debit balance of $97,250; Allowance for Doubtful Accounts,
credit balance of $951. What amount should be debited to Bad Debts Expense, assuming 6% of
outstanding accounts receivable at the end of the current year will be uncollectible?
A. $951.
B. $3,992.
C. $4,884.
D. $5,835.
E. $6,786.
22. A company uses the percent of sales method to determine its bad debts expense. At the end
of the current year, the company's unadjusted trial balance reported the following selected
amounts:
All sales are made on credit. Based on past experience, the company estimates 0.6% of credit
sales to be uncollectible. What amount should be debited to Bad Debts Expense when the yearend adjusting entry is prepared?
A. $1,275
B. $1,775
C. $4,500
D. $4,800
E. $5,500
23. A machine originally had an estimated useful life of 5 years, but after 3 complete years, it
was decided that the original estimate of useful life should have been 10 years. At that point the
remaining cost to be depreciated should be allocated over the remaining:
A. 2 years.
B. 5 years.
C. 7 years.
D. 8 years.
E. 10 years.
24. When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle cost
$23,000 and its estimated salvage value is $1,500. After 4 years of straight-line depreciation, the
asset's total estimated useful life was revised from 8 years to 6 years and there was no change in
the estimated salvage value. The depreciation expense in year 5 equals:
A. $5,375.00.
B. $2,687.50.
C. $5,543.75.
D. $10,750.00.
E. $2,856.25.
25. Thomas Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of
$100,000. The asset is expected to have a salvage value of $15,000 at the end of its five-year
useful life. If the asset is depreciated on the double-declining-balance method, the asset's book
value on December 31, Year 3 will be:
A. $27,540
B. $21,600
C. $32,400
D. $18,360
E. $90,000