MAB3023 pass - SULIT * FINAL EXAMINATION SEMESTER I,...

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Unformatted text preview: SULIT * FINAL EXAMINATION SEMESTER I, ACADEMIC SESSION 200612007 PERAKAUNAN KEWANGAN I1 (FINANCIAL ACCOUNTING 11) INSTRUCTIONS TO CANDIDATES: 1. This paper contains TWO (2) sections. Section A consists of 40 multiplechoice questions and THREE (3) calculation questions in Section B. 1. Answer ALL multiple-choice questions in Section A using the OMR form (KUIM-BA-101) provided. 2. Answer ANY TWO (2) calculation questions fiom the THREE (3) questions given in Section B. 3 . Candidates are not allowed to bring any materials except stationeries and a calculator into the examination hall without prior permission. 4. Candidates are required to write down the relevant particulars on the Borang H and the OMR form provided. 5. Candidates are not allowed to take question papers out of the examination hall. DO NOT OPEN THIS QUESTION BOOKLET UNTIL YOU ARE TOLD TO DO SO This question booklet has TWELVE (12) printed pages excluding this cover page HAKCIPTA TERPELIHARA SULIT GUIDELINES TO COMPLETE THE OMR FORM 1. Please write down the academic session, the semester and your name on the space provided. 2. Please write down the year of study, the date of examination and the table number on the top right hand comer of the form. 3. Please write down the student's registration number on the space provided and blacken the appropriate space accordingly. 4. Please write down the Course Code in the space provided. 5. Please write down your Course Set in the space provided. SULIT NOV/2006/MAB3023 SECTION A : MULTIPLE CHOICE QUESTIONS [60 marks] You are required to select the best answer to each of the questions in this section. Each question carries 1.5 marks. 1. A current liability is a debt that can reasonably be expected to be paid from existing current assets within A. B. C. D. 2. Which of the following statements concerning current liabilities is INCORRECT? A. B. C. D. 3. one year. the operating cycle. one year,or the operating cycle, whichever is longer. one year or the operating cycle, whichever is shorter. Current liabilities include unearned revenues. A company that has more current liabilities than current assets is usually the subject of some concern. Current liabilities include prepaid expenses. A current liability is a debt that can reasonably be expected to be paid out of existing current assets or result in the creation of other current liabilities. On August 1,2005, a company borrowed cash and signed a one-year interest-bearing note on which both the face value and interest are payable on August 1,2006. How will the note payable and the related interest be classified in the December 31, 2005, balance sheet? A. B. C. D. Note Payable Current liability Noncurrent liability Current liability Noncurrent liability Interest Payable Noncurrent liability Current liability Current liability Not shown 4. Current liabilities are reported on the balance sheet in A. B. C. D. alphabetical order. order of maturity. random order. order of magnitude. 1 HAKCIPTA TERPELIHARA SULIT 5. A contingency needNOT be recorded nor disclosed when A. B. C. D. it is probable the contingency will happen and the amount can be reasonably estimated. it is probable the contingency will happen but the amount cannot be reasonably estimated. it is reasonably possible the contingency will happen and the amount can be reasonably estimated. the possibility of the contingency happening is remote. Use the following information for questions 6-7. The net income of the Rice and Wynn partnership is $120,000. The partnership agreement specifies that Rice and Wynn have a salary allowance of $32,000 and $48,000, respectively. The partnership agreement also specifies an interest allowance of 10% on capital balances at the beginning of the year. Each partner had a beginning capital balance of $80,000. Any remaining net income or net loss is shared equally. 6. What is Rice's share of the $120,000 net income? 7. What is the balance of Wynn's Capital account at the end of the year after net income has been distributed? 8. Which of the following is an INCORRECT statement about a corporation? A. B. C. D. A corporation is an entity separate and distinct from its owners. Creditors ordinarily have recourse only to corporate assets in satisfaction of their claims. A corporation may be formed in writing, orally, or implied. A corporation is subject to numerous state and federal regulations. 9. Preferred stockholders have a priority over common stockholders as to A. B. C. D. dividends only. assets in the event of liquidation only. voting rights. both dividends and assets in the event of liquidation. 2 HAKCIPTA TERPELIHARA SULIT NOV/2006/MCA2013 10. On January 2, 2002, Riley Corporation issued 10,000 shares of 6% cumulative preferred stock at $100 par value. On December 31,2005, Riley Corporation declared and paid its first dividend. What dividends are the preferred stockholders entitled to receive in the current year before any distribution is made to common stockholders? 11. Additional paid-in capital includes all of the following EXCEPT the amounts paid in A. B. C. D. over par value. over stated value. fiom treasury stock. for the par value of common stock. 12. The effect of a stock dividend is to A. B. C. D. decrease total assets and stockholders' equity. change the composition of stockholders' equity. decrease total assets and total liabilities. increase the book value per share of common stock. 13. If a corporation declares a 10% stock dividend on its common stock, the account to be debited on the date of declaration is A. B. C. D. Common Stock Dividends Distributable. Common Stock. Paid-in Capital in Excess of Par. Retained Earnings. 14. Of the four dividends types, the two most common types in practice are A. B. C. D. cash and scrip. cash and property. cash and stock. property and stock. 15. Dividends Payable is classified as a A. B. C. D. long-term liability. contra stockholders' equity account to Retained Earnings. current liability. stockholders' equity ac 3 HAKCIPTA TERPELIHARA SULIT SULIT 16. Bond interest paid is A. B. C. D. higher when bonds sell at a discount. lower when bonds sell at a premium. the same whether bonds sell at a discount or a premium. higher when bonds sell at a discount and lower when bonds sell at a premium. 17. When bonds are converted into common stock A. B. C. D. the market price of the stock on the date of conversion is credited to the Common Stock account. the market price of the bonds on the date of conversion is credited to the Common Stock account. the market price of the stock and the bonds is ignored when recording the conversion. gains or losses on the conversion are recognized. 18. If bonds with a face value of $60,000 are converted into common stock when the carrying value of the bonds is $54,000, the entry to record the conversion will include a debit to A. B. C. D. Bonds Payable for $60,000. Bonds Payable for $54,000. Discount on Bonds Payable for $6,000. Bonds Payable equal to the market price of the bonds on the date of conversion. 19. A $600,000 bond was retired at 98 when the carrying value of the bond was $592,000. The entry to record the retirement would include a A. B. C. D. gain on bond redemption of $8,000. loss on bond redemption of $4,000. loss on bond redemption of $8,000. gain on bond redemption of $4,000. 20. The present value of a bond is also known as its A. B. C. D. face value. market price. future value. deferred value. 4 HAKCIPTA TERPELIHARA SULIT SULIT NOV/2006/MCA2013 21. Amount $5 million, lo%, 10-year bonds are issued at face value. Interest will be paid semi-annually. When calculating the market price of the bond, the present value of A. B. C. D. $500,000 received for 10 periods must be calculated. $5 million received in 10 periods must be calculated; $5 million received in 20 periods must be calculated. $250,000 received for 10 periods must be calculated. 22. If a common stock investment is sold at a gain, the gain A. B. C. D. is reported as operating revenue. is reported under a special section, "Discontinued investments," on the income statement. is reported in the Other Revenue and Gain section of the income statement. contributes to gross profit on the income statement. 23. If the equity method is being used, cash dividends received A. B. C. D. are credited to Dividend Revenue. require no entry because investee net income has already been recorded at the proper proportion on the investor's books. are credited to the Stock Investments account. are credited to the Revenue from Investment in Stock account. 24. Consolidated financial statements present all of the following EXCEPT the A. B. C. D. individual assets and liabilities of the parent company individual assets and liabilities of the subsidiary. total revenues and expenses of the subsidiary. all of these are presented in consolidated financial statements. 25. The company whose stock is owned by the parent company is called the A. B. C. D. controlled company. subsidiary company. investee company. sibling company. 26. A company that owns more than 50% of the common stock of another company is known as the A. B. C. D. charge company. subsidiary company. parent company. management company. 5 HAKCIPTA TERPELIHARA SULIT SULIT NOV/2006/MCA2013 27. Short-term Stock Investments should be valued on the balance sheet at A. B. C. D. the lower of cost or fair value. the higher of cost or fair value. cost. fair value. 28. Which one of the following would not be classified as a short-term investment? A. B. C. D. Marketable stock securities Equity method investments Marketable debt securities Short-term paper 29. Short-term investments are securities that are'readily marketable and intended to be converted into cash within the next A. B. C. D. year. two years. year or operating cycle, whichever is shorter. year or operating cycle, whichever is longer. 30. A company that acquires less than 20% ownership interest in another company should account for the stock investment in that company using A. B. C. D. the cost method. the equity method. the significant method. consolidated financial statements. 31. Retained earnings is A. B. C. D. always equal to the amount of cash that the corporation has generated from operations. a part of the paid-in capital of the corporation. a part of the stockholders' claim on the total assets of the corporation. closed at the end of each accounting period. 32. Each of the following is correct regarding bonds EXCEPT they are A. B. C. D. a form of interest-bearing notes payable. attractive to many investors. issued by corporations and govenunental agencies. soldin large denominations. 6 HAKCIPTA TERPELIHARA SULIT SULIT NOV/2006/MCA2013 3 3. Stockholders of a company may be reluctant to finance expansion through issuing more equity because A. B. C. D. leveraging with debt is always a better idea. their earnings per share may decrease. the price of the stock will automatically decrease. dividends must be paid on a periodic basis. 34. Which of the following is NOT a principal characteristic of the partnership form of business organization? A. B. C. D. Mutual agency Association of individuals Limited liability Limited life 35. The primary purpose of the statement of cash flows is to A. B. C. D. provide information about the investing and financing activities during a period. prove that revenues exceed expenses if there is a net income. provide information about the cash receipts and cash payments during a period. facilitate banking relationships. 36. Horizontal analysis evaluates a series of financial statement data over a period of time A. B. C. D. that has been arranged from the highest number to the lowest number. that has been arranged from the lowest number to the highest number. to determine which items are in error. to determine the amount andfor percentage increase or decrease that has taken place. 3 7. Ratios that measure the short-term ability of the enterprise to pay its maturing obligations are A. B. C. D. liquidity ratios. profitability ratios. solvency ratios. trend ratios. 7 HAKCIPTA TERPELIHARA SULIT NOV/2006/MCA2013 SULIT 38. Lennox Corporation had 300,000 shares of common stock outstanding during the year. Lennox declared and paid cash dividends of $200,000 on the common stock and $160,000 on the preferred stock. Net income for the year was $880,000. What is Lennox's earnings per share? 39. Flynn Company reported a net loss of $10,000 for the year ended December 31,2005. During the year, accounts receivable decreased $5,000, merchandise inventory increased $8,000, accounts payable increased by $10,000, and depreciation expense of $5,000 was recorded. During 2005, operating activities A. B. C. D. used net cash of $2,000. used net cash of $8,000. provided net cash of $2,000. provided net cash of $8,000. 40. Starting with net income and adjusting it for items that affected reported net income but which did not affect cash is called the A. B. C. D. direct method. indirect method. working capital method. cost-benefit method. 8 HAKCIPTA TERPELIHARA SULIT SULIT NOV/2006/MCA2013 SECTION B You are required to answer any TWO (2) from the three questions in this section. Question 1 Wally, Willie and Alice formed a partnership several years ago. On 1 January 2006, Wally has decided to withdraw from the partnership and agree to accept cash payment of $80,000. The current capital balances are: Wally, capital $50,000; Willie, capital 65,000; and Alice, capital $100,000. Prior to the withdrawal of Wally, the partners agree to revalue some of the partnership assets. Inventory with a cost of $120,000 has a current market value of $150,000; land with a cost of $50,000 has a market value of $125,000. The partnership as on that date has a cash balance of $85,000 and account payable balance of $40,000. Wally, Willie and Alice share net income and losses in a 3:3:4 ratio. You are required to: a. to calculate the new capital account balances of each of the partners after the asset revaluation. (10 marks) b. Prepare the new balance sheet after the partnership has paid cash of $80,000 to Wally. (10 marks) Question 2 The comparative balance sheets for Kohl Company appear below: KOHL COMPANY Comparative Balance Sheet Dec. 31,2005 Dec. 31,2004 Assets Cash Accounts receivable Prepaid expenses Inventory Long-term investments Equipment Accumulated depreciation-equipment Total assets $ 23,000 18,000 6,000 27,000 -060,000 (18,000) $116.000 Liabilities and Stockholders' Equity Accounts payable Bonds payable Common stock Retained earnings Total liabilities and stockholders' equity 9 HAKCIPTA TERPELIHARA $ 21,000 $ 9,000 37,000 40,000 18,000 $116.000 45,000 23,000 10,000 $87.000 SULIT SULIT NOV/2006/MCA2013 Additional information: 1. 2. 3. 4. Net income for the year ending December 31,2005 was $20,000. Cash dividends of $12,000 were declared and paid during the year. Long-term investments that had a cost of $18,000 were sold for $16,000. Sales for 2005 were $120,000. Instructions Prepare a statement of cash flows for the year ended December 31, 2005, using the indirect method. (20 marks) SULIT SULIT Question 3 The financial statements of Coulter Company appear below: COULTER COMPANY Comparative Balance Sheet December 31, 2005 Assets $ 25,000 Cash 15,000 Short-term investments Accounts receivable (net) ................................................................. 50,000 Inventory ........................................................................................ 150,000 Property, plant and equipment (net). ................................................. 160,000 Total assets ................................................................................. $400.000 Liabilities and stockholders' equity Accounts payable ..............................................................................$ 20,000 Short-term notes payable .................................................................. 40,000 Bonds payable ................................................................................... 80,000 Common stock .................................................................................. 160,000 Retained earnings .............................................................................. 100,000 Total liabilities and stockholders' equity.................................. $400.000 2004 $40,000 60,000 30,000 170,000 200,000 $500.000 $ 30,000 90,000 160,000 145,000 75,000 $500.000 COULTER COMPANY Income Statement For the Year Ended December 31,2005 Net sales ............................................................................................ Cost of goods sold ............................................................................. Gross profit ....................................................................................... Expenses Interest expense........................................................................... $12,000 Selling expenses...': ...................................................................... 30,000 59,000 Administrativeexpenses ............................................................. Total expenses ....................................................................... Income before income taxes ............................................................. Income tax expense.. .....................................................................:... Net income ........................................................................................ 11 HAKCIPTA TERPELIHARA 101,000 75,000 30,000 $ 45.000 SULIT NOV/2006/MCA2013 Additional information: a. Cash dividends of $20,000 were declared and paid in 2005. b. Weighted-average number of shares of common stock outstanding during 2005 was 30,000 shares. c. Market value of common stock on December 31,2005, was $21 per share. Instructions Using the financial statements and additional information, compute the following ratios for Coulter Company for 2005. Show all computations. Current ratio Return on common stockholders' equity Price-earnings ratio Acid-test ratio Receivables turnover Times interest earned Profit margin Average days to sell the inventory Payout ratio Return on assets (20 marks) END OF QUESTION ...
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This note was uploaded on 11/13/2011 for the course ACCT 101 taught by Professor Dontknow during the Spring '08 term at Central Washington University.

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