NAME: ______________________________ BU ID Number: _________________________ AC221 Financial Accounting Exam 1 – EXAMPLE Academic Integrity There will be absolutely no tolerance for cheating or other acts of academic dishonesty. All exams are governed by the Boston University Academic Conduct Code. Penalties may range from a minimum of a zero grade on the test or assignment, to an appearance before the Academic Conduct Committee, which might result in expulsion from Boston University. I certify that my conduct complies with the standards set in the Boston University and Questrom Academic Codes of Conduct. Signature _______________________ Print name ___________________________ INSTRUCTIONS: 1) Clearly write your name and BU ID on both the front of the test booklet and on the answer sheet. 2) Fully stow away all items other than a pen, pencil & calculator. You may not use a computer, phone, or tablet as a calculator. 3) If your phone is seen during the exam, you will lose 25% or more of the possible exam points. 4) The exam length is ?? minutes. Please monitor the time. 5) Return your entire exam, both the test booklet and the answer sheet, upon completion. Please put the answer sheet and any additional pages that come loose inside the stapled pages of the test booklet. Good Luck! 1 SECTION 1: MULTIPLE-CHOICE & SHORT ANSWER Answer each question on the answer sheet. Only answers on the answer sheet will be graded. Answer with the best choice. When your answer involves account names, use the most specific account possible. 1. The term debit means A) to increase B) to decrease C) the left side of an account D) the right side of an account 2. When a company raises money by issuing equity, what equity account increases? Be as specific as possible. a. cash b. dividends payable c. notes payable d. stockholders’ equity e. common stock 3. The recording of expenses in the same time period as the related revenues are recognized is known as a. cost recovery b. expense c. matching d. recognition e. payable 4. Each answer represents all of the accounts and account balances on a company’s balance sheet. Which balance sheet has an error? a. Cash = $400, Land = $200, Accounts Payable = $500, Common Stock = $100 b. Equipment = $100, Accounts Receivable = $200, Prepaid Rent = $100, Accounts Payable = $100, Retained Earnings = $200 c. Accounts Receivable = $700, Accounts Payable = $200, Note Payable = $100, Retained Earnings = $400 d. Cash = $100, Inventory = $400, Unearned Revenue = $200, Common Stock = $300 NAME: ______________________________ BU ID Number: _________________________ 5. Indicate whether each of the following accounts normally possesses a debit (Dr.) or credit (Cr.) balance. a. Common Stock b. Wages Payable c. Revenue d. Equipment e. Accumulated Depreciation f. Dividends 6. One of the objectives of financial reporting is to reflect business economics (economic “truth”), in a manner that is useful to decision makers. As was discussed in class, what are the two major factors that can cause accounting numbers (e.g., financial statements) to not reflect economic truth? 7. Name the four parties that are the primary audience for financial accounting information. Be as specific as possible. 8. What is the Accounting Equation (show the specific formula)? 9. Through what single balance sheet account is net income connected to the balance sheet? Be as specific as possible. 3 10. On May 1, 2017, Fried Falcoln’s balance sheet had the following information available: Total Assets Total Liabilities Total Stockholders’ Equity $500,000 $400,000 $100,000 During the month of May, Fried Falcon earned revenue of $120,000 and incurred expenses of $30,000. Dividends declared during May were $20,000. Falcon borrowed $5,000 in May. No other transactions impacting equity occurred. What is Fried Falcon’s stockholders’ equity at the end of May? 11. What type of account is accumulated depreciation? Be as specific as possible. NAME: ______________________________ BU ID Number: _________________________ SECTION 2: Journal Entries • • • Only answers on the answer sheet will be graded. Use the most specific account name possible. For example, when appropriate use a revenue or expense account instead of the retained earnings account. Unless stated otherwise, assume that transactions are for cash and events occur in December, 2017. Unless stated otherwise, on the answer sheet, prepare the journal entries for December, 2017 assuming accrual basis financial statements are prepared at the end of the month. All appropriate exchange transactions and adjusting entries for the December 2017 financial statements should be recorded. 12. Slater Co. is a sporting goods retailer. On December 15, 2017, Slater purchased 40 footballs at a cost of $40 each. The purchase was made on “account” with payment due in January, 2018. In journal entry format, record all entries for the exchange transaction for the month of December, 2017. Record all answers on the answer sheet. 13. On January 1, 2017, Patriot Corp. purchased a machine that is used to automate the inflation of footballs to the required specifications. The machine costs $2,000 and is expected to have a useful life of 5 years. After 5 years, the machine is expected to have no value. The benefits of the machine are expected to be evenly spread over the period of use, so Patriot Corp. chose to use the straight-line depreciation method. In journal entry format, record any necessary adjusting entries related to the first year of ownership. Do not record the initial exchange transaction. Record all answers on the answer sheet. 5 14. On December 31, 2017, Belichick Inc. sold 100 championship trophies for $50 each to fantasy football clubs across the country. Each of the trophies had been purchased for $20 each in November of 2017. All of the transactions were for cash. In journal entry format, record all entries for the exchange transaction and adjusting entries, if any, for the month of December, 2017. Record all answers on the answer sheet. 15. Hightower Realty owns a tall office building and rents space to commercial customers. In November 20, 2017, Hightower collected $60,000 of cash for the rental of space from December 1, 2017 to November 30, 2018. In journal entry format, record all entries for the exchange transaction and adjusting entries, if any, for the month of November, 2017 and December, 2017. Record the entries for each month separately. Record all answers on the answer sheet. NAME: ______________________________ BU ID Number: _________________________ 16. On Nov. 1, 2017, McCourty Ltd. paid the company’s facility rent for the period Nov. 1, 2017 to Oct. 31, 2018. McCourty paid $24,000 cash for the rent. McCourty prepares financial statements on Dec. 31 of each year. In journal entry format, record all entries for the exchange transaction and adjusting entries, if any, for the year ended December 31, 2017. Record all answers on the answer sheet. 17. On October 1, 2017, Kraft Corp. issued a note to borrow $12,000,000 from Lender Enterprises. The note has annual interest rate of 10%. The full amount owed to Lender Enterprises will be paid by Kraft Corp. on September 30, 2018. Kraft Corp. prepares financial statements on December 31, 2017. What exchange journal entries related to the borrowing and adjusting journal entries, if any, need to be recorded in 2017 by Kraft Corp.? 7 SECTION 3: Income Statement Preparation – Accrual Basis 18. Dynasty Enterprises had the following information during November 2017: 1. 2. 3. 4. 5. 6. 7. Inventory purchases on account Inventory purchases for cash Sales on account Cash sales Cost of inventory sold on account Cost of inventory sold for cash Payment of 3 months' rent in advance on Nov. 1 (1 of the months rent is for November 2017) 8. Payment of inventory purchased on account 9. Collections from credit customers 10. Wages earned and paid during November 11. Wages earned but not paid during November 12. Purchases of supplies on account 13. Supplies used during November $6,800 $2,800 $15,000 $3,500 $7,500 $1,700 2,100 3,000 9,900 5,000 3,200 1,200 200 Required: Prepare a good form income statement for Dynasty Enterprises for the month of November, 2017, under the accrual basis of accounting. Include all appropriate headings, sub-totals, and totals. **Below is a draft workspace. Only your answers on your answer sheet will be graded** NAME: ______________________________ BU ID Number: _________________________ # Points Put Your Answers In These Spaces *Only clearly market answers will be given credit* 2) 3) 4) 1-4 1) 5 a-f 5a) 6 6-factor 1) 6-factor 2) 7 7a) 7b) 7c) 7d) 5b) 5c) 5d) 5e) 5f) 8 8) 9/10/11 9) 12 Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount 13 14 15 10) 11) Reduction in points this side 9 # 16 17 Points Date Put Your Answers In These Spaces *Only clearly market answers will be given credit* Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount Date Dr. Account Name Dr. $ Amount Cr. Account Name Cr. $ Amount 18 Reduction in points this side Reduction in points other side - Total Reduction in Points + Total Points Possible on Exam = Total Points Earned
