FINANCIAL ACCOUNTING 1 EXAMINATION
Time: 3 Hours
for each of the following unrelated items. Answer
of these items
by giving the number of your choice. For example, if (1) is the best answer for
item (a), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item
will not be marked. Incorrect answers will be marked as zero. No account will be taken of any
explanations you offer.
Wolfe and Fevrier observed the following error in its financial statements. An amount of $20,000,
received from a customer as a deposit for an item with a sales value of $80,000, was credited to sales.
The goods are expected to be delivered after the year end. What is the effect of this error?
1) Liabilities understated, net income understated, and owner’s equity understated by $20,000
2) Liabilities overstated, net income overstated, and owner’s equity overstated by $60,000
3) Liabilities understated, net income understated, and owner’s equity understated by $60,000
4) Liabilities understated, net income overstated, and owner’s equity overstated by $20,000
Peter’s Plumbing has taken a set of financial statements to the bank to request a loan. The company’s
assets are reflected on the balance sheet at the amount paid to purchase them. The manner in which
assets have been recorded is consistent with which of the following accounting principles?
1) Monetary principle
2) Cost principle
3) Business entity principle
4) Revenue recognition principle
In the December 31, 2001 year-end inventory count for Parts Ltd., ending inventory was incorrectly
valued at $50,000 instead of $62,000. Beginning inventory and all purchases are valued at the same
unit price. Assuming that the December 31, 2002 inventory balance was correctly determined, what
would the impact of the December 31, 2001 ending inventory error be on the December 31, 2002
1) Assets understated, income understated, owner’s equity understated
2) Assets overstated, income overstated, owner’s equity overstated
3) Assets correctly stated, income overstated, owner’s equity correctly stated
4) Assets correctly stated, income understated, owner’s equity correctly stated
Henderson Ltd. bonds are trading at 103
. What does this indicate?
1) The coupon rate is 3
% higher than the market rate.
2) The bonds pay 3
3) The bonds are currently traded at $1,035 per $1,000 bond.
4) The market interest rate is 103
% of the coupon rate.