ADMS3585F04Midterm

ADMS3585F04Midterm - York University AkIAdms 3585.03...

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Unformatted text preview: York University AkIAdms 3585.03 Intermediate Financial Accounting Midterm Examination — Test Form B October 3, 2004 Time: 90 minutes Questions: 50 Instructions: 1. The test has 2 sections and 10 pages. Page 10 is for your rough work. 2. Only the mark sense sheet will be collected - -- you may keep this midterm examination paper. Mark your answers on it for later reference. 3. Record your name and student number and single choice answer to all questions on the computer mark sense sheet provided. - Use an HB pencil - Code is your Section (in the left column) - Fill in the bubbles for your name and student number too, in pencil (your phone number is not required). Leave the last column of the student number BLANK 4. Calculators are the only aid allowed. 5. The exam is 90 minutes in length and will run from approximately 2:00 pm to 3:30 pm. Budget your time wisely. 6. It is prudent practice to transfer your answers to the grading sheet after each question, and to proof your transfers. - The proctors will announce when there are 10 minutes remaining and any answers not transferred should be recorded at this time. o No one is to leave their seats in the last 10 minutes. c When time is called, the proctors will go down the rows collecting your answer sheets. They will not wait and they will not accept your sheet once they have passed. Any violation of this protocol will result in a grade of zero recorded for the exam. 7. You are reminded that cheating is a serious offense which can result in expulsion frnm nniunrcihl SECUOH A: uestions 1-44 44 marks 1 mark each — 80 minutes Choose the best answer for each of the following questions 1. Which ofthe following statements is not an objective of financial reporting? a. Provide infomiation that is useful to users in resources allocation. b/Provide information on the liquidation value ofan enterprise c. Provide in formation in assessing management stewardship. d. Provide information useful in investment and credit decisions. 2. The body that has the primary responsibility to set generally accepted accounting principles in Canada is the a. FASB. b. IASC. c. OSC. 45 AcSB. 3. Which of the following is not considered as a major mechanism that protects financial information from management bias? a./ Lawyers b. GAAP c. Auditors d. Provincial securities Commission 41 Accounting information is considered to be relevant when it '1 a. is verifiable and neutral, b. can be depended on to represent the economic conditions and events that it is intended to represent. c.; is understandable by reasonably informed users of accounting information. of is capable ofmaking a difference in a decision. 5. Information is neutral ifit ca.’ cannot be selected to favour one set of stakeholders over another. b. can be compared with similar information about an enterprise at other points in time. or would have no impact on a decision maker. (1. provides benefits which are at least equal to the costs ofits preparation. 6. Financial infonnation exhibits the characteristic of consistency when a. expenses are reported as charges against revenue in the period in which they are paid. b. extraordinary gains and losses are not included on the income statement. a“ accounting entities give accountable events the same accounting treatment from ___i.:_.ii_ U...) What accounting concept justifies the usage of accruals and deferrals? a. Materiality constraint b/Going concern assumption c. Consistency characteristic (1. Monetary unit assumption The allowance for doubtful accounts, which appears as a deduction from accounts receivable on a balance sheet and which is based on an estimate ofbad debts, is an application ofthe a. matching principle b. consistency characteristic. e/ materiality constraint d. revenue recognition principle. Representational faithfulness is an ingredient of the primary quality of a. understandability ibf‘ reliability c. relevance d. consistency Which ofthe following statement is not true about the economic entity assumption a. The assumption means that economic activity can be identified with a particular business unit of accountability. b. The assumption is used to differentiate a business’ activity from its owners and any other business unit c. An economic entity does not necessarily refer to a legal entity \d/A subsidiary cannot be considered as an example of economic entity During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept? xa/ Periodicity assumption b. Cost/benefit relationship 0. Conservatism constraint (1. Matching principle ." The cost ofa wastcbasket with an estimated useful life of 10 years is recorded as an expense at purchase rather than recorded as a long-temi asset. This is an example ofthe application ofthe a., ' consistency characteristic. {Q materiality constraint. c. matching principle. 31’." historical cost principle. 13. Which ofthe following best illustrates the accounting concept of conservatism? a. Use ofthe allowance method to recognize bad debt losses from credit sales b. Utilization of a policy of deliberate understatement of asset values in order to present a conservative net income figure c. Not recognizing any expense unless some revenue is realized «(f Anticipates all losses, but reports no gains when uncertain 14. An accounting record into which the essential facts and figures in connection with all transactions are initially recorded is called the a. ledger. b. account. c.“ journal. d. trial balance. 15. ' Why are certain costs of doing business capitalized when incurred and then amortized over subsequent accounting cycles? . To match the costs of production with revenues as earned b. To aid management in cash-flow analysis c. To reduce the income tax liability d. To adhere to the accounting constraint of conservatism 16. An accrued expense can best be described as an amount 'a./ not paid and currently matched with earnings. b. not paid and not currently matched with earnings. c. paid and not currently matched with camings. d. paid and currently matched with earnings. f. 17. How does failure to record accrued revenue distort the financial reports? ‘ a. It overstates revenue, shareholders’ equity, and current liabilities. \b/ It understates net income, shareholders‘ equity, and current liabilities. c. It understates revenue, net income, and current assets. d. It understates current assets and ovcrstatcs shareholders’ equity. 18. Credit entries will a{/ decrease expenses c. decrease liabilities b. increase assets d. decrease retained earnings CA. ,. it Which ofthe following statements is true? all Information is entered into a general ledger before it is posted to agenemljournal. b. Adjusting entries are recorded after the closing entries have been recorded. Equal totals in a trial balance guarantees that no errors have been made in the recording process. d. Revenue accounts will have a zero balance after the closing entries have C. 20. Which ofthe tollowing is a temporary (nominal) account? a? Goodwill {’1’ Dividend c. Accounts Receivable d, Retained Earnings 21. Well Company borrowed $10,000 on September 1, 2004 from the National Bank. The annual percentage rate (APR) is 6%. Both the principle and interests would be paid on September 1, 2005. On December 31, 2004, the company needs to accrue interest expense of a. 5531000., Mszoo. c. $150 . d. —0— 23. The year—end adjusting entry to record accrued interest expense will act to: a.“ Increase liabilities and decrease equity. 1). Increase equity and decrease liabilities c. Decrease assets and decrease liability. (1. Increase assets and increase equity. 23. Forbes Company paid $4,800 on July 1, 2002 for a one—year insurance policy and recorded the entire amount as Prepaid Insurance The December 31, 2002 adjusting entry is a. debit Insurance expense and credit Insurance Payable, $2,400. b. debit Insurance Expense and credit Prepaid Insurance, $2,400. 92’. debit Prepaid Insurance and credit Insurance Expense, $2,400 d. debit Insurance Payable and credit Prepaid Insurance, $2,400. (231. On October I, 2002, Lowe Co., a newly organized magazine publisher, received $72,000 for 1,000 three—year subscriptions at $24 per year, starting with the November 1, 2002 issue. What amount should Lowe report in its 2002 income statement for subscriptions revenue? a. $24,000. 1,! via. $6,000 c. $4,000 d. $72,000. 25. Infomiation in the income statement helps users to a. evaluate the past perfomianee 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 ofthese. 26.. Limitations ofthe income statement include all ofthe following except a. only actual amounts are reported in determining net income. Estimated amounts are not reported. b. items that cannot be measured reliably are not reported. c. income measurement involves iudacment. 27. In 2003, [am Corporation found that amortization expense of 2002 was understated by $5,000 (net of taxes). To correct this error. Zam Corporation should a. subtract $5,000 from year 2003‘s net income b. add 85,000 to year 2003’s net income. \9/ subtract $5,000 from 2003’s beginning retained earnings do add $5,000 to year 2003’s beginning retained earnings 28. Which of the following should be presented in the income statement net of tax tai/ income from continuous operations b. discontinued operations. /‘ e. extraordinary items. d. all of these. 29. All ofthe following are advantages of multiple—step income statement except 21. provides greater insight into the performance of the enterprise x137 ease of preparation e, provides better opportunity for comparison within the industry d. provides higher quality due to greater predictive and feedback value 30. Which ofthe following is a change in accounting principle? A change from FIFO to weighted average for inventory b, A change in estimated allowance for bad debts c. A change in the estimated future salary expense (1. A change in the estimated service life of machinery 31. Which of the following is a required disclosure in the income statement when reporting the disposal ofa segment ofthe business? a. The gain or loss on disposal should be reported as an extraordinary item. b, Results of operations of a discontinued segment should be disclosed immediately below extraordinary items. c. The gain or loss on disposal should be reported together with the results of _4 continuing operations. d“. Earnings per share from discontinued operation should be disclosed on the face of the statement. 32. Catt Company, with an applicable income tax rate of 30 percent, reported net income of $280,000, Included in income for the period was an extraordinary loss from flood damage of $40,000 before deducting the related tax effect. The company's income before income taxes and extraordinary items was a?!" $308,000. 0! $440,000. e. $400,000 d. 8320.000 33. A review of the December 31, 2002, financial statements of Carcy Corporation revealed that under the caption "extraordinary losses,” Carey reported a total of $615,000. Further analysis revealed that the $615,000 in losses was comprised ofthe following items: (1) Carey recorded a loss of $150,000 incurred in the abandonment of equipment formerly used in the business. (2) In an unusual and infrequent occurrence, a loss of $350,000 was sustained as a result of hurricane damage to a warehouse. (3) During 2002, several factories were shut down, resulting in a loss of $85,000. (4) Uncollectible accounts receivable of$30,000 were written off as uncollectiblc. Ignoring income taxes, what amount of loss should Carey report as extraordinary on its 2002 income statement? a. $150,000. 13/ $350,000. or $435,000 d. $615,000. 341 The following information was extracted from the books of Colaw Corporation: Total reported income since incorporation, reported on Jan 1, 2002 $1,500,000 Total cash dividends paid since incorporation, reported on Jan 1, 2002 (800,000) Cumulative effect of changes in accounting principle in 2002 on prior years’ income (120,000) Net income during 2002 500,000 Total stock dividends distributed during 2002 (200,000) Correction ofa prior year error 60,000 What should be the balance of retained earnings at December 31, 2002‘? 1 w J 5 ‘N a. $1,000,000. I ) .‘ V“ b. S 880,000. 5 ,, c/' 5 940,000. v‘ d, $1,060,000. 35. During 2002, Perez Corporation disposed of Rush Division, a major segment of its business. Perez realized a gain 0f$1,500,000, net of taxes, on the sale of Rush's assets. Rush‘s operating losses, net oftaxes, were $1,800,000 in 2002. How should these facts be reported in Perez's income statement for 2002? Total Amount to be Included in Income from Results of Continuing Operations Discontinued Operations 3. $-0— $300,000 loss b. 300,000 loss 0 1800.000 loss 1.500.000 gain a. operating activities. b, financing activities. n/ inuncrinn nfll;xr;‘I-c.\n 36. Quinn Company reported the following infomiation for 2002: Sales revenue $520,000 Operating expenses 350,000 Gain on the sale ofcapital assets 55,000 Gain from fluctuations of foreign exchange 50,000 Unrealized holding gains on available for sale securities 2,000 For 2002, Quinn would report other comprehensive income of a. $107,000. b. $52,000. 0. $277,000. igk’ $2,000. 37. The correct order to present current assets is a. I Cash, inventories, accounts receivable, prepaid items. Cash, accounts receivable. prepaid items, inventories. c. Cash, accounts receivable, inventories, prepaid items. d. Cash, inventories, prepaid items, accounts receivable. 38 Which item below is not a curTent liability? a. Stock dividends b. Uneamed revenue c. The currently maturing portion oflong—term debt d Trade accounts payable 39. Which ofthe following is a limitation ofthe balance sheet? a. Many items that are of financial value are omitted. b. Judgements and estimates are used. c. Current fair value is not reported. «1/ All ofthese 40. The owners‘ equity section is usually d1v1ded into what four parts? A lzlflf'refcrred shares, common shares, contributed surplus, other comprehensive income . Capital shares, contributed surplus, retained earnings, accumulated other comprehensive income ct/ Preferred shares, common shares, retained eamings, accumulated other comprehensive income (1. Capital shares, appropriated retained earnings, unappropriated retained earnings, accumulated other comprehensive income 4] . Making and collecting loans and disposing ofproperty, plant, and equipment are 42. In preparing a statement of cash flows, which of the following events would be considered a1 cash flow from financing activity? a. Sale of equipment at book value b.' Issuance of bonds payable 9/ Declaration of a cash dividend d. Sale of merchandise on credit 43. Working capital is a. capital which has been reinvested in the business b. unappropriated retained earnings. 9/ ' current assets less current liabilities (1. cash and receivables less current liabilities. 44. Free cash flow is calculated as net cash provided by operating activities less a. capital expenditures. b dividends. 0. capital expenditures and amortization. d capital expenditures and dividends Section B: Questions 45-50 6 marks g1 mark each)— 10 minutes Indicate whether each of the following six statements is true or false. Choose A if you believe the statement is true. Choose B if you believe the statement is false. 7’ 45. Stakeholder is defined as external parties that have a stake with a finn’s financial information. Thus, management is not considered as a stakeholder. 46. The major role of financial accounting is to identify, measure, analyze, and communicate financial information to help various users for their decision making. 47. Change in accounting estimates should be reported in income statement. 48, Single—step income statement is not an acceptable method of presenting the income statement. l 49. Both free cash flow and cash debt coverage ratio can be used to evaluate companics’ financial flexibility. 50. Equipment purchased but not used in current operations should be classified as Property, Plant, and Equipment. WOM HD1108 ...
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This note was uploaded on 10/02/2010 for the course ADMS 3585 taught by Professor .... during the Spring '10 term at York Tech.

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ADMS3585F04Midterm - York University AkIAdms 3585.03...

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