financial accouting-exam 1

financial accouting-exam 1 - Heme: 8323‘: Section: Left...

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Unformatted text preview: Heme: 8323‘: Section: Left Center Right Seat: 0000IINTI00 2113 SP0“! 2000 ' M 1 E Knapp’s MegaSection Kfi b103, t Section I: Multiple Choice -- 76'pointe | On your scantrons, answer “a” for true and “b” for false. Choose the BEST answer! 1. A key advantage of the corporate form of business organization is a. the personal assets of a coiporation's owners are not at risk if the business is sued. b. the profits of a corporation are taxed only once. c. that all profits of a corporation must be distributed each year to its stockholders. d. All of the above. 2. A key advantage of using historical costs for asset valuation purposes 15 that historical costs a. are more objective than current values. b. are more conSistent with the entity concept than current values c. are likely to be less conservative than current values. d. do not violate the unit—of—measurement concept 3. Common current assets include a. Prepaid Expenses. b. Intangible Assets. c. Short—term Investments. . d. Cash. d I e. a, (2 ap. 4. The unit of measurement concept requires that expenses be recorded in the same accounting period as the related revenues. a. True b. False 5. If a journal entry affects one asset account and two liability accounts, that journal entry must be out of balance in reference to the accounting equation. a True b. False \ 6. A company that has negative retained earnings Will have a debit balance in its Retained Earnings account. a. True b. False 7. A post—closing trial balance is prepared to determine whether a business's general led er is in balance prior to the preparation of adjusting journallentries. a. True b. False w 8. Follow1ng are the transactions of Giddens' Turnip Shop during the first week of the business's existence. The business began its operations with a $3,000 cash balance. May 1: Paid $850 for June rent May 2: Sold $150 of turnips for cash May 3: Paid a deposit of $250 on'a equipment rental May 4: Sold $810 of plants for césh May 5: Sold $320 of turnips on credit May 6: Sold $370 of turnips on credit May 7: Paid salaries of $390 to employees what was the cash balance of Giddens' Turnip Shop at the close of bus1ness on May 7? a. $2,860 b. $3,160 0. $2,470 d. $2,970 e. $3,320 I 9. A primary purpose of period-ending adjusting journal entries is to avoid Violations of the unit—of—measurement concept. a. True b. False Facts for Questions 10-13: the accountants of Rath & Boyles preparing year—end adjusting entries for the company. \resulted in an or understatement (U) of the relevant component accounting equation or whether the error had no After making yeur selections, item, given component. indicate whether the error Listed next are several errors that Trucking, Inc. made when For each overstatement (O) of Rath & Boyles’ effect (N) on the choose the proper multiple ch01ce answer for each item. W. (DCLOU'DJ Recorded an ad3usting entry , for unpaid interest expense I on a note payable by debiting Interest Rece1vable and crediting Cash. Dld not record an adjusting entry to recognize interest earned on certificate of dep031t. Did not record adjusting entry for depreciation expense on an office building. Failed to record an adjustin entry to recognize the portijn of the Prepaid Insurance balance that had expired by the end of the Year. Total Total Owners' Total I E For Error W, the three “answers” are (in the proper order) N, N, N N, U, U U, N, U 0, O, N None of the above k 11. For Error X, the three “ansWers” are (1n the proper order) a. N, N, N b. N, U, U c. U, N, U (1. o, o, N ' e. None of the above 12. For Error Y, the three “answers” are (in the proper order) a. N, N, N b. N, U, U c. U, N, U d. O, O, N e None of the above 13. For Error Z, the three “answers” are (in the proper order) a. N,N,N b. N, U, U l C. U, N, U d 0,0,N " e. None of the above 14. Examples of "operating expenses" include sales commis51ons. advertising costs. salaries of a firm's top executives. All of the above Q-OU‘QJ 15. The Foreign Corrupt Practices Act of 1977 requ1res all publicly owned companies to establish internal controls that have a high likelihood of preventing and detecting bribes, kickbacks, and similar payments. a. True b. False Facts for Questions 16-18: Following are several items relevant to the Operations of Cox Otsu & Putnam (COP), a law firm. For each transaction or event, indicate the nature of the adjusting entry required, if any, on December 31. 16. COP's accountant estimates that the law firm will have income taxes expense of $7,700 for the month of December. COP W111 pay this amount by March 15 of the f¢110w1ng year. debit an expense account, credit a liability account debit a liability account, credit a revenue account debit an asset account, credit a revenue account debit an expense account, credit an asset account no adjusting entry required (DQOU‘DJ 17. COP's employees earn $4,000 of salary collectively each day. The employees work Monday througi Friday and are paid each Friday. This year, December 31 f 11s on a Wednesday. debit an expense account, credit a liability account debit a liability account, credit a revenue account debit an asset account, credit a revenue account debit an expense account, credit an asset account no adjusting entry required (DQOU‘SD 18. Birchhead Corporation owes dOP for services it prov1ded to the law firm during December. No entry pertaining to these serVices has been recorded in COfi'S accounting records. debit an expense account, credit a liability account debit a liability account, credit a revenue account debit an asset account, credit a revenue account debit an expense account, credit an asset account no adjusting entry required (DQOU'DJ 19. Accountants can prepare meaningful reports for ongOing businesses by dividing the lives of businesses into regular reporting intervals of equal length. Relevance Reliability Accounting period concept Matching principle Historical cost principle (DELOD‘QJ 1 i Timeliness, predictive value, and/or feedback value Verifiability, neutrality, and representational faithfulness A means of determining the expenses to be included in an a f1nanc1al recordkeeplng 20. a Relevance : b. Reliability C. Accounting period concept d Matching pr1nc1p1e e Historical cost principle 21 a. Comparability b Reliablllty c Materiality d Matching pr1nc1ple e Historlcal cost principle 22 income statement a. Comparability b Reliability c Accounting period concept d Matchlng pr1n01ple e. HlStOIlcal cost principle 23 Double—entry bookkeeping is system used only in the United States and a few European countries 8 a True b. False 24. The reported profits of muld affected by their home country‘s a. True b False 25. An important disadvantage of system 18 the absence of a trail transaction a True b. False inatlonal companies are not accounting rules. a computer-based accounting of paper documentation for each I | I | Facts for Questions 26-29: Each‘of these 1tems lists an account tltle that we rev1ewed 1n class ' Indlcate the normal balance of each account 26 Sales revenue: a. Deblt b. Credlt 27 Research and development expenses a. Deblt b. Credit 8 Income taxes payable. 2 a Deblt b Credlt 2 9 Inventorles: a Deblt * b Credlt 30 The p011C1es and procedures establlshed to help ensure that an entlty’s prlmary organlzatlonal objectlves are accomplished. Control env1ronment Accountlng system Control act1v1t1es Internal control CLOUSD C 31 Mary Catherine's Gutterlng fierv1ce purchased $8,200 of cleanlng supplles durlng Januaryfl The bu51ness ended the month With $1,900 of cleanlng supplies. If the company falls to record a perlod—endlng entry to reflect the supplles used during the month, at month—end the company's a. assets W111 be overstated and 1ts llabllltles understated. b assets w1ll understated and 1ts owner’s equ1ty understated. c. assets Will be overstaQed and 1ts owner’s equ1ty understated. d. assets w1ll be overstated and 1ts owner's equlty overstated L 32 Whlch of the follow1ng accounts 1s a temporary account? Prepald Rent Unearned Rental Revenue Accounts Payable DepreC1atlon Expense QOD‘SD 33. Which of the follow1ng accounts 15 a permanent account? D1v1dends Interest Revenue Prepald Advertlsing Income Taxes Expense QJOU‘QJ 34 Wthh of the follow1ng accounts would not be Closed at the end of an accounting perlod? ‘ Advertlslng Expense D1v1dends Unearned Rental Revenue Deprec1atlon Expense P 35 The concept of reasonable assurance suggests that the benefits speC1f1c controls prov1de to an organlzatlon should exceed the cost of those controls to the organization. Q-OU'W a True b. False 36 The 1n1t1al step of the c1031ng process 15 preparlng a post— \ c1081ng tr1a1 balance. : B a True b False Facts for Questions 37 & 38--On January 1, 2000, Armand, Bovard & Atklns, Inc. (ACA) pald $5,000 rent 1n advance on 1ts offlce bulldlng for the year 2000. On that same date, ACA recelved a $14,000 payment for serv1ces rendered the prev1ous month (December 1999). ACA's accountant had recorded an approprlate year—end adjusting entry for the $14,000 of serv1ces provided durlng December. 37. Collectlvely, how d1d these‘two January 1, 2000, transactlons affect ACA's total assets? increased total assets by $5,000 increased total assets‘by $9,000 decreased total assets by $5,000 decreased total assets by $9,000 None of the above mmoo‘m 38. Four accounts In total were affected by the two transactlons recorded by ACA's accountant on January 1, 2000. These accounts 1ncluded 6 two asset aCCOUnts and two llablllty accounts three asset accounts and one llablllty account three asset accounts and one expense account three asset accounts and one revenue account. four asset accounts. (DQOU’QJ Section II: Matching (softball) \ l ( *- 8 p01nts 10 Follow1ng are several transactions of 50118 & Schultz, Inc Each Of these transactlons occurred Olil December 5th Incredibly, each transactlon 1nvolved the same dollar amount, $500. Match the descrlptlon of each transaction wlth the approprlate journal entry A UOUJ {EQUIIZU A lm lmlvlq‘llt“ |°l Recelved $500 advance payment from a customer for work to be performed 1n January. I Pald employee salarles of $$00 for flrst week of December Pald January rent on leasedlofflce space, $500 Pald $500 electr1c1ty bill for November that had been properly recorded w1th an adjusting entry on November 30. Recelved $500 from customeruin payment of account recelvable Wrote a $500 check to purchase supplles. Purchased equlpment on credlt for $500. Recelved $500 for 1nterest that had been earned 1n November on a bank account; an appropriate adjustlng journal entry had been recorded for thls 1tem‘on November 30. Cash 500 , Unearned Revenue ‘ 500 Prepaid Rent 500 Cash 500 Suppfies 500 I Cash 100 Cash 500 Interest Receivable 500 Equipment 500 Accounts Payable SClO Accounts Payable 500 Cash 500 Salaries Expense 500 Cash 500 Cash 500 Accounts Receivable 500 11 Sectlon III: Preparing an Income Statement —— 9 pelnts Follow1ng are the llne items, présented 1n random order, that were Included 1n a recent 1ncome statement of Franc1s Company Income Tax Expense I 5 24,500 Gross Profit } ? Interest Revenue 4,300 Selllng, General and Admlnlstrative Expenses 32,200 Operating Income I ? Cost of Goods Sold 45,000 Net Income ? Income Before Income Taxes ? Net Sales ‘ 142,000 \ Required: Prepare an 1ncome stataLnent for Franc1s Company. (Of course, 1nc1ude the appropriate $011ar amounts for the "mystery" 1tems ) Né‘f SALéS $ («(2, 000 (031 of may sow 15¢.» Ggoss Epofi 1' 000 $6M 6134's” a zoo Ofémflhfi- I’ve.ng You qua’flr I26 wave 9, 300 131 ‘ (.7. 100 I l a l 2 Section IV —— Find the Mystery NUmbers 7A 6 pojnts Llst€d below are all of the acco nts of W C Properties, Inc Determlne the m1581ng amounts as umlng that the company has total assets of $455,000 Show your r'k“ \ Accounts Payable $ 17,20b Accounts Receivable 98,7b0 Equlpment ? Inventory 66,9$0 Land 111,1¢O Notes Payable ?; Short—term Investments 17,5¢0 Supplles 6,200 Owners' Equ1ty (total) 294,100 157,000 m. 700 Ilaqltnilartxeunj;fii liirttmkifi3£tgraflbliafis A: L +06 Az'vsxooo A: Nit-r 6W5" 1‘” , a" CO I f L‘roc :‘q‘§:000 ‘ OE L+ 06 - h/P {- N/P+ 45.000: [7. 2001' N + Fifi/00 NIP: 772 70? l ill/WM $1171- S opp u4oo+ll£M+IZaormao ...
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This note was uploaded on 04/07/2008 for the course ECON 1123 taught by Professor Holmes during the Spring '08 term at The University of Oklahoma.

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financial accouting-exam 1 - Heme: 8323‘: Section: Left...

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