VILLANOVA UNIVERSITY
School of Business
VSB2010-4
Accounting Exam (Chapters 1-4)
NAME______________________
Row ____
As a community committed to the Augustinian ideals of truth, unity and love, Villanova
University prides itself on maintaining the highest standards of academic integrity and
does not tolerate any forms of academic dishonesty or misconduct. Accordingly, each
student who takes an examination is expected to sign the following statement:
I _______________________(sign your name) have not had any unsanctioned prior
access to this examination and will conduct myself in an honest manner in regard to all
aspects of this examination.
PART 1 – MULTIPLE CHOICE
1. Which of the following is not an advantage of the corporate form of business
organization?
A) No personal liability
B) Easy to transfer ownership
C) Favorable tax treatment
D) Easy to raise funds
2. Which of the following is the most appropriate and modern definition of
accounting?
A) The information system that identifies, records, and communicates the
economic events of an organization to interested users
B) A means of collecting information
C) The interconnected network of subsystems necessary to operate a business
D) Electronic collection, organization, and communication of vast amounts of
information.
3. Ending retained earnings for a period is equal to:
A) Beginning retained earnings + Net income + Dividends
B) Beginning retained earnings – Net income – Dividends
C) Beginning retained earnings + Net income – Dividends
D) Beginning retained earnings – Net income + Dividends
4. Which of the following is not a satisfactory statement of the accounting equation?
A) Assets = Stockholders' Equity – Liabilities.
B) Assets = Liabilities + Stockholders' Equity.
C) Assets - Liabilities = Stockholders' Equity.
D) Assets - Stockholders' Equity = Liabilities.
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5. If total liabilities increased by $15,000 and stockholders' equity increased by
$5,000 during a period of time, then total assets must change by what amount
and direction during that same period?
A) $20,000 decrease
B) $20,000 increase
C) $25,000 increase
D) $30,000 increase
6. An annual report includes all of the following except
A) management discussion and analysis section.
B) notes to the financial statements.
C) an auditor's report.
D) salary information for all the executives.
7. N3 Corporation has assets of $2.7 million, common stock of $702,000, and
retained earnings of $428,000. What are the creditors' claims on their assets?
A) $2,426,000
B) $1,130,000
C) $1,570,000
D) $2,974,000
8. How can a company improve its current ratio?
A) Work with a creditor to reclassify some current debt into long-term debt
B) Use cash to reduce current liabilities
C) Nothing can ethically be done to improve the current ratio
D) Use excess cash to buy new equipment
9. If total liabilities increased by $5,000, then
A) assets must have decreased by $5,000.
B) stockholders' equity must have increased by $5,000.
C) assets must have increased by $5,000, or stockholders' equity must have
decreased by $5,000.
D) assets and stockholders' equity each increased by $2,500.
10. The purchase of an asset on credit
A) increases assets and stockholders' equity.
B) increases assets and liabilities.
C) decreases assets and increases liabilities.
D) leaves total assets unchanged.
11. The payment of a liability
A) decreases assets and stockholders' equity.
B) increases assets and decreases liabilities.
C) decreases assets and increases liabilities.
D) decreases assets and liabilities.
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12. When collection is made on Accounts Receivable,
A) total assets will remain the same.
B) stockholders equity will increase.
C) total assets will increase.
D) total assets will decrease.
13. If a company issues common stock for $25,000 and uses $20,000 of the cash to
purchase a truck,
A) Assets will be increased by $5,000.
B) Equity will be reduced by $25,000.
C) Assets will be increased by $25,000.
D) Assets will be unchanged.
14. Jamal Company began the year with $32,000 in its Common Stock account and a
debit balance in Retained Earnings of $18,000. During the year, the company
earned net income of $9,000 and declared and paid $3,000 of dividends. In
addition, the company sold additional common stock amounting to $11,000.
Based on this information, what should the transaction analysis show for the
ending total of all stockholders' equity accounts?
A) $67,000
B) $73,000
C) $31,000
D) $45,000
15. An accountant has debited an asset account for $1,000 and credited a liability
account for $500. What can be done to complete the recording of the transaction?
A) Nothing further must be done.
B) Debit a stockholders' equity account for $500.
C) Debit another asset account for $500.
D) Credit a different asset account for $500.
16. At January 31, 2010, the balance in Goebel Inc.'s supplies account was $250.
During February. Goebel purchased supplies of $300 and used supplies of $400.
At the end of February, the balance in the Supplies account should be
A) $250 debit.
B) $350 credit.
C) $950 debit.
D) $150 debit
17. A $20,000 machine is purchased by paying $5,000 cash and signing a note
payable for the remainder. The journal entry should include a
A) credit to Note Payable.
B) debit to Cash.
C) credit to Notes Receivable.
D) credit to Machinery.
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18. Which of the following errors, each considered individually, would cause the trial
balance to be out of balance?
A) A payment of $148 to a creditor was posted as a debit to Accounts Payable
and a debit of $148 to Cash.
B) Cash of $530 received from a customer on account was posted as a debit of
$350 to Cash and as a credit of $350 to Accounts Payable.
C) A payment of $59 for supplies was posted as a debit of $95 to Supplies and a
credit of $95 to Cash.
D) A transaction was not posted.
19. Manuel's Tune-Up Shop follows the revenue recognition principle. Javier services
a car on August 31. The customer picks up the vehicle on September 1 and
mails the payment to Manuel on September 5. Manuel receives the check in the
mail on September 6. When should Manuel show that the revenue was earned?
A) August 31
B) August 1
C) September 5
D) September 6
20. On April 1, 2010, nPropel Corporation paid $48,000 cash for equipment that will
be used in business operations. The equipment will be used for four years.
nPropel records depreciation expense of $9,000 for the calendar year ending
December 31, 2010. Which accounting principle has been violated? Why?
A) Depreciation principle, because depreciation expense is $12,000 per year.
B) No principle has been violated because P has correctly matched the expense
for using the equipment to the period it generated revenue.
C) Matching principle because the cash was paid in 2010 and should be
expensed in 2010.
D) Matching principle because depreciation expense should be $8,000.
21. Which statement is correct?
A) As long as a company consistently uses the cash basis of accounting,
generally accepted accounting principles allow its use.
B) The use of the cash basis of accounting violates both the revenue recognition
and matching principles.
C) The cash basis of accounting is objective because no one can be certain of
the amount of revenue until the cash is received.
D) As long as management is ethical, there are no problems with using the cash
basis of accounting.
22. Which of the following would be unethical?
A) Recording advertising costs as an expense when the advertising takes place.
B) Recognizing revenue at the time a gift card is sold.
C) Deferring rent expense paid in advance.
D) Deferring revenue recognition on monies received in advance of providing
the service.
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23. Accounts often need to be adjusted because:
A) there are never enough accounts to record all the transactions.
B) many transactions affect more than one time period.
C) there are always errors made in recording transactions.
D) management can't decide what they want to report.
24. If a resource has been consumed but a bill has not been received at the end of the
accounting period, then:
A) an expense should be recorded when the bill is received.
B) an expense should be recorded when the cash is paid out.
C) an adjusting entry should be made recognizing the expense.
D) it is optional whether to record the expense before the bill is received.
25. A law firm received $2,000 cash for legal services to be rendered in the future.
The full amount was credited to the liability account Unearned Service Revenue.
If the legal services have been rendered at the end of the accounting period and
no adjusting entry is made, this would cause:
A) expenses to be overstated.
B) net income to be overstated.
C) liabilities to be understated.
D) revenues to be understated.
26. Depreciation is the process of:
A) valuing an asset at its fair market value.
B) increasing the value of an asset over its useful life in a rational and systematic
manner.
C) allocating the cost of an asset to expense over its useful life in a rational and
systematic manner.
D) writing down an asset to its real value each accounting period.
27. Ames Real Estate signed a four-month note payable in the amount of $12,000 on
September 1. The note requires interest at an annual rate of 9%. The amount of
interest to be accrued at the end of September is:
A) $360.
B) $90.
C) $1,080.
D) $120.
28. Closing entries:
A) are prepared before the financial statements.
B) reduce the number of permanent accounts.
C) cause the revenue and expense accounts to have zero balances.
D) summarize the activity in every account.
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29. The Accounts Receivable account has a beginning balance of $52,000 and an
ending balance of $74,000. If $42,000 was sold on account during the year,
what were the total collections on account?
A) $20,000
B) $64,000
C) $84,000
D) $94,000
30. One of the accounting concepts upon which adjustments for prepayments and
accruals are based is:
A) matching.
B) historical cost.
C) monetary unit.
D) economic entity.
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PART 2 – PROBLEMS
Problem 1- Bloom Company commenced business on October 1, 2009. A partial
worksheet as of December 31 appears on the answer sheet. Record the following
adjustments for the period October 1- December 31 in the adjustments column of the
worksheet. Please letter the adjustments as you record them. You do not need to total the
adjustments columns.
a. A physical count of supplies indicates that $300 of the Supplies remain in inventory on
December 31.
b. The prepaid insurance covers the period from October 1, 2009 thru March 31, 2010
c. The depreciation on the Automobile is estimated at $1,200 a year. The automobile
was acquired on November 1.
d. Accrued interest on the Notes Payable. The note is dated November 1 and carries a
6% interest rate.
e. Accrued salaries amount to $800 for the last two days of December.
f. $800 of the Unearned Revenue has been earned as of December 31.
g. Revenue of $500 has been earned but not recorded at year-end.
Problem 2- The following information is available for Mullen Company at
December 30, 2010:
Accounts payable
Accounts receivable
Accumulated depreciation-equip.
Retained earnings
Common stock
Patent
Notes payable (due in 5 years)
Long-term investments
Cash
Short-term investments
Land
Equipment
2,700
1,500
4,000
16,000
4,800
2,500
7,500
400
2,600
1,000
19,500
7,500
On December 31, Mullen sold additional common stock for $5,000 and used half
of the funds to acquire additional equipment.
Instructions
Determine new balances for the accounts that changed on December 31. (It is not
necessary to show me this work.) Then, prepare a classified balance sheet for
December 31, 2010.
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VILLANOVA UNIVERSITY
School of Business, VSB 2010
Fall 2009, Answer Sheet, Exam 1
NAME__________________________
PART 1
Multiple
Choice
PART 1
1
16
2
17
3
18
4
19
5
20
6
21
7
22
8
23
9
24
10
25
11
26
12
27
13
28
14
29
15
30
Row ____
Multiple
Choice
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Problem 1
ACCOUNTS RECEIVABLE
SUPPLIES
PREPAID INSURANCE
AUTOMOBILE
ACCUM. DEPR.- AUTOMOBILE
NOTES PAYABLE
ACCOUNTS PAYABLE
INTEREST PAYABLE
UNEARNED REVENUE
SALARIES PAYABLE
COMMON STOCK
RETAINED EARNINGS
DIVIDENDS
SALES REVENUE
SALARIES EXPENSE
SUPPLIES EXPENSE
MAINTENANCE EXPENSE
RENT EXPENSE
INSURANCE EXPENSE
INTEREST EXPENSE
DEPRECIATION EXPENSE
UTILITY EXPENSE
4,800
1,200
2,100
18,000
10,000
2,600
7,400
12,000
3,200
8,000
5,400
2,300
40,000
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40,000
XXXXXX
XXXXX
PROBLEM 2
ASSETS
Current Assets
Cash
Page 10
Page 11
Answer Key
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
C
A
C
A
B
D
C
A
C
B
D
A
C
C
D
D
A
A
A
B
B
B
B
C
D
C
B
C
A
A
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Problem 1
CASH
ACCOUNTS RECEIVABLE
SUPPLIES
PREPAID INSURANCE
AUTOMOBILE
ACCUM. DEPR.- AUTOMOBILE
NOTES PAYABLE
ACCOUNTS PAYABLE
INTEREST PAYABLE
UNEARNED REVENUE
SALARIES PAYABLE
COMMON STOCK
RETAINED EARNINGS
DIVIDENDS
SALES REVENUE
SALARIES EXPENSE
SUPPLIES EXPENSE
MAINTENANCE EXPENSE
RENT EXPENSE
INSURANCE EXPENSE
INTEREST EXPENSE
DEPRECIATION EXPENSE
UTILITY EXPENSE
DEBIT
3,000
4,800
1,200
2,100
18,000
CREDIT
DEBIT
G
CREDIT
500
A
B
900
1,050
C
200
D
100
E
800
F
G
800
500
10,000
2,600
7,400
F
800
12,000
3,200
8,000
5,400
E
A
800
900
B
D
E
1,050
100
200
2,300
40,000
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40,000
XXXXXX
XXXXX
PROBLEM 2
ASSETS
Current Assets
Cash
5,100
Short-term investments
1,000
Accounts Receivable
1,500
Total Current Assets
7,600
Investments
400
Property, Plant, and Equipment
Land
19,500
Equipment
10,000
Less Accumulated Depreciation
4,0000
6,000
Total Property, Plant, and Equipment
25,500
Intangible Assets
Patent
2,500
TOTAL ASSETS
36,000
LIABILITIES & STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts Payable
2,700
Long-term Liabilities
Note Payable
7,500
Total Liabilities
10,200
Stockholders’ Equity
9,800
Common Stock
Retained Earnings
16,000
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY
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25,800
36,000
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