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prelim 2 fall 2006

prelim 2 fall 2006 - HA 121 Financial Accounting...

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HA 121 - Financial Accounting Exam #_________ Preliminary Exam 2 November 2, 2006 True and False 1. Most manufacturing and retailing companies record sales revenue at the time they receive an order from a customer. 2. Credit terms "2/10, n/30" mean that if payment is made in two days, a 10% discount will be given; if not paid within two days, the full invoice price will be due in thirty days. 3. The gross profit percentage is computed by taking operating income divided by net sales. 4. The reason that we must adjust revenue for the change in accounts receivables to convert the figure to cash collected from customers is that accounts receivable represent sales revenue not collected from customers at the beginning and end of the accounting year. 5. A company has beginning inventory of $50,000, ending inventory of $35,000 and purchases of $250,000. Therefore, its cost of goods sold is $265,000. 6. An understatement error in the ending inventory causes an overstatement of both net income and current assets in that year. 7. With a perpetual inventory system, we track both the units and costs of beginning inventory, purchased inventory and inventory sold. 8. Patents and trademarks are examples of tangible assets. 1
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HA 121 - Financial Accounting David A. Dittman Preliminary Exam 2 November 2, 2006 9. Repair costs are classified as capital expenditures when they increase the useful life or efficiency of an asset. 10. An asset, which cost $200,000 and had accumulated depreciation of $78,000, was sold for $120,000 generating a $2,000 loss. 11. A copyright is an intangible asset that represents the right to use, sell, or publish a particular artistic, literary, or musical work. 12. In 2003, Starbucks had an accounts payable turnover ratio of 11.0 times while its competitor, Panera Bread’s ratio was 9.29 times. The lower payable turnover indicates it takes Panera longer to pay their suppliers. 13. A company borrowed $100,000 at 6% interest on September 1, 2009. The entry to record interest accrued on December 31, 2009 would include a debit to interest expense and a credit to interest payable for $3,000. 14. Harley Davidson reported a potential lawsuit claim in its footnotes because it was reasonably possible they would incur a cost even though they were appealing the judgment. 15. Landry’s Restaurants accounts payable equaled $82.9 million in 2003 and was $71.7 million in 2002. This change in accounts payable had a positive impact on cash. 2
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HA 121 - Financial Accounting David A. Dittman Preliminary Exam 2 November 2, 2006 Multiple Choice 1. A company that sells magazines and collects subscription fees prior to the publication and distribution of the magazine. As the cash is received in advance from the customers, the company should record a debit to Cash and a credit to a. Sales revenue. b. Prepaid expenses. c. earned revenue. d. Accounts payable. e. None of the above is correct.
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