ACC_310F___Spring_2001_Exam_2__worked_

ACC_310F___Spring_2001_Exam_2__worked_ - Exam 2 ACC 310F,...

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Unformatted text preview: Exam 2 ACC 310F, Spring 2001 Name Answer Multiple Choice questions by selecting the best answer for each question and recording your answer on BOTH your Scantron answer sheet as well as your personal answer sheet; ratio calculations are noted at the top of your personal answer sheet. (3 points each) 1. The main reason for performing a bank reconciliation is to: A. satisfy the practices of generaliy accepted accounting principles. satisfy the rules of the Securities and Exchange Commission. determine the amount of cash that is available for company usew ” . determine whether or not the entity has issued an NSF check. E. determine how much interest was earned for the period. 2. A company sold inventory to a customer for $500 cash that had been originally purchased from a supplier for $600 in the previous year. What would be the net effect of sales transaction on each of the following: Total Assets Net lncome Fl I L “i E 'i Q at M E increased increased decreased decreased “i 500 "VSGO 06. increased decreased eéDO * {>00 1;). decreased increased W E. more information is needed 1" 0 ’ N1: .. mg 3. Ecolawn Equipment Company was organized in July and made the following inventory purchases for the year July 4 40 units at a cost of $75 per unit July 12 50 units at a cost of $78 per unit July 20 55 units at a cost of $80 per unit July 26 60 units at a cost of er unit a f5? £77?“ A physical count of inventory at the end of July reveals that there are still 20 units available in the company‘s warehouse. Using the HF? inventory methgd, the cost of goods sold for July is jg: 1,640 f “m 14,580 ' < ' > Hg D. 14,720 it? be??? E. 16,220 4. The use of office supplies previously purchased for cashKWOuld A increase expenses and have no effect on assets g. have no effect on expenses and decrease assets increase expenses and decrease assets D no have effect on expenses and no effect on assets E none of the above ' w Wawfixwflesmv "KW-MN n... A 6. lf a company uses an accelerated method of depreciation then ~ depreciation expense at the end of the assets’ life would be less than if the straight-line method were used. depreciationiie‘xpense at the end of the assets' life wuigmgféater than if the straight-line method were used. depreciation engnse _., r'ets‘ life would be the same as if the straight-line method were used. K , . m IE. depreciation eW‘ the begin fig/«Q1: the assets‘ iife would be the same as if the straight-line method were E ’ iation expense attth beginning of the assetstdifewould be less than as if the straight-line method were used. W 7. Which of thw'ié‘foilowing are characteristics of a capital lease: W ? Ownershipbfthg asset transfers‘to the lesseewatthee‘ndgf the lease period. to" . The lessee is allo‘Wed to purchase theassdtfdr a smallgfim at the end of the lease periods» . The lease term is at l life of the assetgf ~ . The presentvatueeof the lease-payments is at leastXS’O‘Vo of the fair value of the asset. " , All gsmadéi/e. a e W mar-- 8. A cfifitpany is considering purchasing an asset ,. 0 000 but hassaisorbeieifi“ a lease arrangement whekbyghey can lease the same asset for $1 e er its estimated life of 10 years. Using the informatié‘iribelow as needed and assumingwa ’nterest rate "of,4%, the company uld . Premsaniwvalue factor-eta" forget) year‘sgat 4% = (516756 “55 a Presenth‘azl-u tor of an annfiity of a $1: for 10 years at 4% = 8.1109 é .3 purchase ’the’asset (lease the asset ‘_ the company would not getygédditionaibene fro either option, it should not matter morehintgrmation is needed 9. investors and creditors’thild be,.l’east interestedin answering w ch of the'wfollowing questions Is the company earning satiSfactory income? " ' g Will the company be ablg’toapay its debts as they come due? «2 gig; Will the companybe‘abie to afford employee-pay raises this year? D. How dogsithebompagy compare in profitability withhoer ' ors? ;. Wit company bearable to pay dividends this year? 1d. broad categories; by which financial r . “Fiaancial leverage Acti 6 ' stare‘fi’rouped include all 0 11. Which of statements regardi ratios is correct ‘ k The current ratio Vandfithefidividend payout ratio a’i‘ierbothvmeasures of liquidity. a . The gazice earnings ratio;an the times interest earned ratibaaizewboth measures of profitability. The ahumber of‘days’ sales’iim ccounts receivable and the number'otggays' sales in inventory are both measures of liquidity,” , , _ _ Ea; Tf debtfequity ratio and the current’ratig are both measures of financial leverage None of the above are correct. WWWWR n-..- A 12. Given the partial list of information below, what is the cash balance that should be reported on the Balance Sheet for Smith Company as of May Stst: o The May 31 cash balance before reconciliation is $2,544. Company checks that totaled $392 were mailed by Smith on May 30. A $640 deposit was mailed to the bank on May 30. interest credited to the account during May to $36. Check #345 was erroreously recorded in the cash account for $20 less than the actual amount written on the check. 0 Service charges for the month totaled $15. 0 A customers check for $25 was returned as "NSF" with the bank statement. flax 2,272 2,520 2,768 a, _ . 2,792 , r E. 2,877 r, 13. Which of the following statements regarding marketable securities is not true: A. Securities that are not likely to be converted to cash within a few months, but may be traded at a later date are reported on the balance sheet at fair market value rather than cost (i.e. the amount originally paid). B. Short-term marketable securities are reported at cost (Le. the amount originally paid) on the balance sheet. C. The accrual of interest on short-term marketable securities results in an increase in current assets and an increase in net income . Companies sometimes purchase securities for strategic reasons rather than short-term financial gain. All of the above statements are true. 14. If a company had a current ratio of 2.00, which of the following transactions would cause an increase to that atio? r 4 i v Paid the principal on a long-term note payable for F fl Borrowed cash on a short-term note to ” Sold inventory for more than cost D. All of the above are correct E. None of the above is correct 15. if a company estimated that $500 owed by customers for services provided would not be collected, the transaction would be recorded as: Assets 3 Liabilities + Owners‘ Equity (— Revenues - Expenses A. Accounts Bad debt receivable expense -500 -500 fat—7% -------------------------------------------------------------------------------------------------------------------------------------- -- Allowance for Bad debt bad debt expense -500 -500 C. Accounts Revenue receivable ~500 ~500 D. Accounts receivable —500 Allowance for bad debt 500 E. None of the above 16. After the bank reconciliation is prepared which of the following items would not require that a transaction be recorded in the company's financial records? A. Interest earned for the month as noted in the bank statement. B. An error in recording the amount of a check by an Accounts Payable clerk. A check written by a company employee. Amounts for bank services provided as noted in the bank statement. All of the above would require a transaction. 17. in periods of rising prices, the inventory cost flow assumption that results in the cost of goods sold being the I sest to current costs is the % FIFO method W LiFO method C. Weighted average method Tax method None of the above 18. The Allowance for Bad Debts is g the amount of cash set aside to cover bad debts. '” ' . the exact amount of a company‘s accounts receivable that is uncollectible. an estimate of the amount of a company's accounts receivable that will not be collected. ‘6. necessary so that accounts receivable will not be understated on the balance sheet. E. a necessary cost of doing business on a credit basis. ? X KTamAccemulated de re ' Q usiness ipm‘entw ' " 20. The production managers of Jumbo Technology receive performance bonuses based maintaining low amounts of excess inventory on the balance sheet. Which inventory costing method are they likely to favor in periods of otattheenfi’tit’th'e fifth yeaéiaaerdenfortfiéwcorfipany to a $5,000 gain f“ sale? flee Lita ‘0: ‘3 C. Weighted average wt; D. Physical inventory method 21 4 (“’6’ E. None of the above W . set had easiegreciated $3,000 a yeagtmgears out of an estimatedme of 25 years and had no: ghai must in t0? sol .. rs--- A a“ mi. 22. A company purchased a piece of equipment for $5,000 on January 1, 2000, and estimated that it would last for 10 years at which time it would be worthless. Assuming the company; uses straight-line depreciation what transaction should they record at the end of 2000: “ti fl 5 Assets = Liabilities + Owners' Equity <— Revenues - Expenses Equipment Depreciation g _‘ expense ' -500’:i> B. Cash Depreciation _ . expense 600%; C. Equipment 6000 Cash -5000 \Accumulated d Epreciation C en None of the above 23. If an asset had been depreciated $3,000 a year for 5 years out of an estimated life of 25 years and had a book value of $70,000 at the end of the fifth year when it is was 0 be sold for $50,000, then its salvage value is A. 0 ” B. 5,000 10,000 f 15,000 - 20,000 24. If a company has an obligation to pay $5,000 to a supplier each year for two fears, obligation: ’ a «z A. is 0 B. is less than $5,000 D. ’1, g, we, «1 is less than $10,000 is $5,000 ,5. is $10,000 25. in periods of rising prices, the use of the weighted average inventory costing method would result in a net income that would be higher than if the LIFO method were used B. higher than if the FlFO method were used C. higher than if either the LIFO or FIFO method were used 0: lower than if either the LIFO or FlFO method were used E. cannot be determined without additional information n--- c Wrmanggvobgiow as needed, calculate the pre - " Mg ,mww 20 years, assuming an W A. Present value factor of an $1 for 20 years areas; 11.4699 la. 62,360 a. zoo " ” ggwtffizzoo 2,293,930 ff 4,000,000 27. If an error were made at year end such that fewer inventory items were counted than were actually on hand and that count was ,compared with total units available for sale to determine how many units were sold, then how would each of the following be affected when the financial statements are prepared Total Assets Cost of Goods Sold Net income A. overstated overstated overstated Br: overstated overstated understated understated understated understated understated understated overstated v/EQ“ understated overstated understated LW/ ngQWwpanyggfied interest at a rate higher than their R0 ‘ é have positive'fi’ftaneiat have negative in I V C. not beab, ke debt " ' D. aeropera ing at a net 1955 E. none of th eve n the company would is 29. All of lowi‘ngista’ ts regard g intangible'assets fire true except: K lntangible assets include items (aspatents,trademarks and copyrights. Bk lntangible assets can be represented byte- contractual right. %. intangible assets cannot b physicallyidentified. lntangible assets are n usually'very useful to a company because they often have a low dollar value. g lntangible assets 6 neifide goodwill. film 30. The relationship. een current assets and current liabilities is A. useful in (let mining income B. useful in featuatiogsaqcempaoy‘sireturrr’on“investments C. called thermatching principle g D. useful ingdetermining the amount of a company'stong-term debt useful inigvaiuating a company‘s liquidity-:- f 1%» 31. Oldham, lnc. stadwédflidfief‘at‘iioifistwenty years ago“§h"‘d"’i‘srstillfusingwits“original equipment and facilities at present. Newman Company began operations a few years ago in the sam'ei‘industry as Oldham. Each company uses theysa’me depreciation methods; furthermore, each has similar customers and about the same 3ygaskevenues and opétatignaj, costsmGivenithis-'situatitenzzwhichyggfi the following stgteafénts is true? Newman should have a lower ROI than Oldham. tr“ ‘5» Newman should have a higher ROI than Oldhamw ‘8‘ Newman should have a loweri-days” in account ceivable ratio than Oldham. "R Newman sho higher days' salespin‘a’ccounts receivable ratio than Oldham. E. None offithetabove 32. Which one of the followingfisnot a tool in financial statement analysis? A. Horizontalanaiysis" $ng Circular anal is I C , .. ,_ D E . Trend analysis: . Ratio analysis . All of the above are tools in financial statement analysis n--- a ent of a short-t ank loan. of the above would impact an assessment of a company's liquidity measures n--- -1 cocoxnoamhmm—xp O>m3>UOOEDO Add—L OJNJO [Tlme 14C 158 160 178 180 198 20A 21D 22E 23C 24C 25A 263D 27E 283 2913 30‘E MA 328 33E nswe TS ...
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ACC_310F___Spring_2001_Exam_2__worked_ - Exam 2 ACC 310F,...

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