ACCOUNTING 2101
Practice Exam 1
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You must do the following:
1.
This exam covers chapters 1-4 and 12 in your textbook.
2.
KEEP THIS TEST BOOKLET INTACT. Do not unstaple the pages. Make sure your test booklet has 8 pages
(including this cover page) consisting of 2 problems—15 multiple choice questions and one workout problem.
3.
Complete this cover page of the test booklet and your scantron sheet per instructions. Be sure to fill in all
bubbles on the answer sheet for your name and ID number. The answer sheet will not be graded unless all bubbles
are filled in appropriately.
3.
Sign the Honor Code Statement below.
4.
Record all answers for Problem I on your scantron sheet (no credit will be given for answers in this test
booklet). ALSO record your answers on your test booklet because your scantron will not be given back to
you. Use only No. 2 pencils. Mark your answer on the answer sheet by blackening the appropriate space. Do not
make extraneous marks on the scantron sheet; and, if you must change an answer, be sure that your erasure is
complete. Your answer and calculations for Problems II must be written in this test booklet.
5.
BUDGET YOUR TIME! Please allow yourself enough time to record all answers on your scantron sheet
during the 120 minutes of the exam. Additional time will not be given to fill in empty bubbles or transfer your
answers from your test booklet to the scantron. Only your scantron will be graded for the multiple choice questions.
6.
At the end of the exam, place your scantron sheet and any scratch paper you use inside this test booklet. Turn
in your test booklet, scantron form, and scratch paper to the proctor.
Failure to follow these instructions will result in a significant loss of points on this exam.
Earned
Possible
Problem I
60
Problem II
40
Total
100
Honor Code Statement:
I have not violated any restrictions during my preparation for this examination. I will neither seek, receive, nor give
assistance during or after this exam. Moreover, I understand that I am obligated to report any honor code violation that I
believe is taking place or has taken place prior/during/after the exam.
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PROBLEM I.
MULTIPLE CHOICE (60 points total; 15 questions; 4 points each) Use the special answer sheet for
your responses to all questions. For each question, choose the most correct answer. You must (1)
CIRCLE the correct answer on this answer sheet AND (2) copy your answers to the scantron.
1. Mel’s Mechanical Repair Shop started the year with total assets of $60,000, total liabilities of $40,000, and retained
earnings of $18,000. During the year, the business recorded $100,000 in auto repair revenues, $70,000 in expenses,
and the company paid dividends of $15,000. If Mel’s Mechanical Repair Shop ends the year with total assets of $80,000,
and total liabilities of $35,000, what is the amount of common stock issued during the year?
(A) $ 10,000
(B) $ 14,000
(C) $ 5,000
(D) $ 3,000
(E) None of the above
2. The following information was taken from the records of Valentine Corporation for the year ended December 31, 20X6.
Advertising expense
Income tax expense
Accounts payable
Dividends paid
Retained earnings (Jan 1, 20X6)
Consulting fees revenue
Rent expense
Supplies expense
$40,000
26,000
26,900
30,000
115,720
200,000
23,400
33,800
The retained earnings reported by Valentine Corporation as of December 31, 20X6 is:
(A) $158,490
(B) $158,090
(C) $111,590
(D) $162,520
3. At the beginning of the year, Suzanne Company had total assets of $1,200,000 and total stockholders’ equity of
$460,000. During the year, total assets increased by $180,000, and total liabilities increased by $84,000. The company
also paid $14,000 in dividends. How much was the net income for the year?
(A) $ 96,000
(B) $130,000
(C) $ 62,000
(D) $110.000
4. Which ONE of the following companies has a large liability recorded in its balance sheet that relates to services for
which customers have paid but that the company has not yet delivered?
(A) Zions Bank
(B) United Airlines
(C) Hewlett-Packard
(D) McDonalds
(E) Caterpillar
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5. At the beginning of the month, a company purchased a new truck for $45,000, paying a $21,000 cash down payment
and agreeing to pay the balance over 12 months through a no-interest financing offer provided by the car dealer. Assume
this transaction is recorded on the first day of the month. The company paid the first finance payment for the truck at
the end of the month. What is the effect of these transactions on the company’s current month-end accounting equation?
(Hint: Assume the first financing payment was made on the last day of the month just before closing the books.)
(A) No effect on Assets; $45,000 decrease in Liabilities; $45,000 increase in Stockholders’ Equity
(B) $22,000 increase in Assets; $22,000 increase in Liabilities; No effect on Stockholders’ Equity
(C) $45,000 increase in Assets; No effect on Liabilities; $45,000 increase in Stockholders’ Equity
(D) No effect on Assets; $24,000 increase in Liabilities; $24,000 decrease in Stockholders’ Equity
6. During its first month of operations, Pluto Company (1) borrowed $200,000 from a bank, and then (2) purchased an
equipment costing $80,000 by paying cash of $40,000 and signing a long term note for the remaining amount. During
the month, the company also (3) purchased inventory for $60,000 on credit, (4) performed services for clients for
$120,000 on account, (5) paid $30,000 cash for accounts payable, and (6) paid $60,000 cash for utilities. What is the
amount of total assets at the end of the month?
(A) $190,000
(B) $270,000
(C) $250,000
(D) $330,000
7. When Honest Abe received his paycheck, he realized that his employer had made an error in computing his wages, and
overpaid him by $2,600. So Honest Abe promptly returned the excess amount. When the employer receives a check
from him for the amount of the overpayment, which of the following journal entries will be made by the employer?
(A) Debit Cash $2,600 and credit Wages Expense $2,600
(B) Debit Wages Expense $2,600 and credit Cash $2,600
(C) Debit Cash $2,600 and credit Wages Payable $2,600
(D) Debit Wages Payable $2,600 and credit Wages Expense $2,600
8. Mouser Pet Supplies had the following transactions during December 20X6:
•
•
•
Paid a note of $34,000, owed since March, plus $850 for interest.
Sold $73,050 of merchandise to customers on account. Cost of goods sold was $42,500.
[Hint: Cost of goods sold is an expense related to the reduction of inventory (merchandise sold).]
Paid accounts payable of $4,100.
As a result of these transactions, at year-end, liabilities and stockholders' equity would show a combined total:
(A) Decrease by $ 9,600
(B) Increase by $ 26,850
(C) Decrease by $ 9,150
(D) Decrease by $ 8,400
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9. Everything You Need Warehouse Company recognizes membership fee revenues over the term of the membership,
which is 12 months. If their Unearned Membership Fee Revenue account had a balance of $2,400 million on January
31, 20X6, and $2,200 million on January 31, 20X7 and the company received membership fees in cash of $4,400
million during the year, what amount was recognized as Membership Fee Revenue for the fiscal year?
(A) $4,600 million
(B) $4,280 million
(C) $4,216 million
(D) $8,560 million
10. Allison, a bank customer, received a loan for $26,000 in exchange for a 7-month, 9% note on October 1, 20X6.
The note is due on April 30, 20X7. If the bank’s accounting period ends on December 31 each year, how much
interest revenue from this note should be recognized by the bank in the years 20X6 and 20X7?
(A)
(B)
(C)
(D)
20X6
$ 585
$ 780
$ 585
$1,365
20X7
$1,365
$ 585
$ 780
$
0
11. Delta Queen Company had $4,800 of supplies on hand on January 1. During the year, the company purchased $7,800
of supplies, and on December 31, determined that only $1,600 of supplies were still on hand. The adjusting entry for
Delta Queen Company on December 31, will include
(A) Credit Supplies Expense $11,000
(B) Debit Supplies Expense $4,600
(C) Debit Supplies $7,800
(D) Debit Supplies Expense $11,000
12. Consider the following information:
Accounts Payable
Accounts Receivable
Cash
Contributed Capital
Cost of Goods Sold
Dividends
Equipment
Insurance Expense
Inventory
Long-term Debt
Prepaid Insurance Expense
Rent Revenue
Retained Earnings (beginning)
Sales revenue
Unearned Rent Revenue
120
250
100
900
1,250
60
900
220
800
1,260
50
100
225
1,000
25
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Which ONE of the following would appear in the closing entries for the year (assuming temporary accounts are
closed directly to retained earnings instead of to an income summary account)?
(A) CREDIT to Cost of Goods Sold for $1,250
(B) CREDIT to Sales Revenue for $1,000
(C) DEBIT to Accounts Payable for $120
(D) DEBIT to Dividends for $60
(E) DEBIT to Contributed Capital for $900
(F) CREDIT to Prepaid Insurance Expense for $50
(G) DEBIT to Unearned Rent Revenue for $25
13. As of December 31, 20X5, Lincolnshire Company had assets of $1,850,000 and liabilities of $570,000. During
20X6, the stockholders invested an additional $100,000 and received dividends of $60,000 from the business.
What is the company’s net income during 20X6, assuming that as of December 31, 20X6, assets were $1,960,000,
and liabilities were $510,000?
(A) $ 170,000
(B) $ 130,000
(C) $ 210,000
(D) $ 40,000
14. On June 1, the company paid $1,200 in advance for 12 months of rent, with the rental period beginning on June 1.
This $1,200 was recorded as Rent Expense. [Yes, they did it wrong, but we have to work with what they did.] As of
the end of the year, no entry has yet been made to adjust the amount initially (incorrectly) recorded. -- Which ONE of
the following will be included in the ADJUSTING ENTRY necessary on December 31?
(A) DEBIT to Prepaid Rent for $700
(B) DEBIT to Cash for $700
(C) DEBIT to Rent Expense for $700
(D) CREDIT to Prepaid Rent for $500
(E) DEBIT to Prepaid Rent for $500
(F) DEBIT to Rent Expense for $500
15. Lily Company was started last year when the shareholders invested $70 cash into the company. At that time, Lily also
borrowed $30 cash from a local bank. Lily used $80 cash to purchase inventory for $80. This year Lily Company sold
all of the inventory for $55 cash. This is NOT a typographical error… the amount received for all of the inventory was
only $55 cash. Which ONE of the following statements is TRUE with respect to Lily Company’s balance sheet
AFTER the sale of the inventory? Note: Assume that there is no interest on the loan.
(A) Cash is $55.
(B) Total Owners’ Equity is $45.
(C) Total Owners’ Equity is $95.
(D) Total Owners’ Equity is $70.
(E) Inventory is $25.
5
Problem II. Statement of Cash Flows (40 points)
The following financial statements are available for Bangerter Corporation (all dollar amounts in millions):
Balance Sheet Data (December 31)
20X6
228
1,100
1,998
97
7,170
(1,400)
850
(150)
$ 9,893
20X5
120
718
2,151
108
6,000
(1,090)
850
(100)
$ 8,757
Cash.......................................................................
Accounts receivable ..............................................
Inventory ...............................................................
Prepaid selling and administrative expenses .........
Property, plant & equipment .................................
Accumulated depreciation.....................................
Intangible assets ....................................................
Accumulated amortization ....................................
Total assets ............................................................
$
$
Accounts payable ..................................................
Unearned revenue .................................................
Income taxes payable ............................................
Dividends payable .................................................
Long-term debt......................................................
Common stock ......................................................
Retained earnings (ending balance, after closing)
Total liabilities and equity.....................................
$
$
200
50
42
289
4,458
4,000
854
$ 9,893
Income Statement Data (for 20X6)
Sales ......................................................
Loss on sale of PPE ..............................
$ (170)
Cost of goods sold.................................
(14,800)
Selling and administrative expenses .....
(3,330)
Depreciation expense ............................
(1,068)
Amortization expense ...........................
(50)
Income tax expense ...............................
(1,200)
Total expenses.......................................
Net income ............................................
270
80
26
90
4,408
3,500
383
$ 8,757
$ 22,680
(20,618)
$ 2,062
Additional information:
a. Equipment with an original cost of $1,200 was sold during 20X6.
b. All accounts payable relate to inventory purchases.
c. Equipment costing $350 was purchased from an investor in exchange for common stock. All other
purchases of equipment in 20X6 were cash transactions.
Required: Prepare a statement of cash flows in good form on page 8. In order to provide consistent grading across
all exams, please do your calculations for each section in the space provided on the next page and/or
within the balance sheet above. Then, prepare the actual statement in the specific spaces provided. When
you prepare the operating activities section of Bangerter’s statement of cash flows, please use the
indirect method for the year ended December 31, 20X6.
Calculations for the operating section. The chart at the top of the next page is optional, but you must include
any calculations somewhere in this space or within the balance sheet at the top of this page:
6
Income Statement
Adjustments
Statement of Cash
Flows
Calculations for the investing section. You must include any calculations somewhere in this space:
Calculations for the financing section. You must include any calculations somewhere in this space:
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Bangerter Company
Statement of Cash Flows
For the Year Ended December 31, 20X6
Cash Flows from Operating Activities:
Net cash flow from operating activities.............................................................................
Cash Flows from Investing Activities:
Net cash flow from investing activities .............................................................................
Cash Flows from Financing Activities:
Net cash flow from financing activities.............................................................................
Net Change in Cash .................................................................................................................
Plus Beginning Cash Balance ..................................................................................................
Ending Cash Balance ...............................................................................................................
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Accounting 2101
Practice Exam I Solutions
PROBLEM I. MULTIPLE CHOICE
1. A.
2. D
3. D
4. B
5. B
6. D
7. A
8. D
9. A
10. C
11. D
12. A
13. B
14. E
15. B
1. Answer: A
Rationale: End of year stockholders’ equity = total assets – total liabilities = ($80,000 - $35,000 = $45,000)
End of year retained earnings = start of year retained earnings + net income – dividends = ($18,000 + ($100,000 $70,000) - $15,000 = $33,000.)
End of the year common stock = year-end stockholders’ equity – year-end retained earnings = ($45,000 - $33,000 =
$12,000)
Start of year common stock = start of year stockholders’ equity – start of year retained earnings = (($60,000 - $40,000)
- $18,000 = $2,000).
Common stock issued during the year = end of year common stock – start of year common stock = ($12,000 - $2,000
= $10,000)
2. Answer: D
Rationale: Year-end retained earnings = beginning retained earnings + net income (loss) – dividends.
Net income = revenue – expenses ($200,000 – ($40,000 + $26,000 + $23,400 +$33,800) = $76,800)
Year-end retained earnings = $115,720 + $76,800 - $30,000 = $162,520
3. Answer: D
Rationale: Assets – Stockholder’s equity = Liabilities
($1,200,000 - $460,000 = $740,000)
Year-end Assets – year-end Liabilities = year-end Stockholders’ equity
[($1,200,000 + $180,000) – ($740,000 + $84,000) = X = $556,000]
Net income = Ending Stockholders’ equity + dividends – beginning Stockholders’ equity
(X = $556,000 + $14,000 - $460,000)
(X= $110,000)
4. Answer: B
Rationale: United Airlines (Tickets purchased in advanced represent a liability until the passenger flies.)
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5. Answer: B
Rationale:
Truck
45,000
Cash
Accounts payable
Cost of Truck
Less cash paid
Balance financed by car dealer
21,000
24,000
$45,000
(21,000)
$24,000 / 12 months = $2,000 per month
Accounts payable
Cash
2,000
2,000
Total change in assets = $45,000 truck + ($23,000) cash paid = $22,000
6. Answer: D
Rationale:
Transaction
(1)
(2)
(2)
(3)
(4)
(5)
(6)
7.
Asset
Account
Cash
Equipment
Cash
Inventory
A/R
Cash
Cash
Assets
$200,000
80,000
(40,000)
60,000
120,000
(30,000)
(60,000)
$330,000
=
Liabilities
$200,000
+
40,000
60,000
120,000
(30,000)
=
$270,000
+
Answer: A
Rationale:
Original Entry
Wage Expense
Cash
Stockholders’
Equity
XXX + 2,600
XXX + 2,600
Correct Entry
Wage Expense
Cash
XXX
Correcting Entry
Cash
Wage Expense
2,600
XXX
2,600
10
(60,000)
$60,000
8. Answer: D
Rationale:
Transaction
(1)
(1)
(1)
(2)
(2)
(2)
(2)
(3)
(3)
Bal. 12/31/16
Account
Interest Expense
Note Payable
Cash
A/R
Fee Revenue
Inventory
Cost of Goods Sold
Cash
A/P
Assets
=
Liabilities
+
Stockholders’
Equity
(850)
(34,000)
(34,850)
73,050
73,050
(42,500)
(42,500)
(4,100)
($8,400)
(4,100)
($38,100)
=
+
$29,700
12/31/16 Liabilities + Stockholders’ Equity = ($38,100) + $29,700 = ($8,400)
9. Answer: A
Rationale:
$2,400 + $4,400 – X = $2,200
X = $2,400 + $4,400 - $2,200
X = $4,600
20X6
10. Answer: C
Rationale:
Total Interest Expense = ($26,000 x .09) x 7/12 = $1,365
Interest Expense for 20X6 = $1,365 x 3/7 = $585 Interest
Expense for 20X7 = $1,365 x 4/7 = $780
11. Answer: D
Rationale:
Beginning supplies + purchases – supplies used = Ending supplies
$4,800 + $7,800 – X = $1,600
X= $4,800 + $7,800 - $1,600 = $11,000 = supplies used
Required entry:
Supplies expense
Supplies
$11,000
$11,000
11
20X7
12.
Answer = A.
Rationale:
Sales Revenue
Rent Revenue
Retained Earnings
1,000
100
Retained Earnings
Cost of Goods Sold
Insurance Expense
1,470
1,100
Retained Earnings
Dividends
1,250
220
60
60
Balance sheet accounts are not closed.
13. Answer: B
Rationale: Stockholders’ equity 12/31/15 = Assets – Liabilities
X= $1,850,000 – $570,000
X= $1,280,000 = Stockholders’ equity 12/31/15
Stockholders’ equity 12/31/16 = Assets – Liabilities
X = $1,960,000 – $510,000
X = $1,450,000 = Stockholders’ equity 12/31/16
Stockholders’ equity 12/31/16 = Stockholders’ equity 12/31/15 + Additional equity investments + Net income –
Dividends
$1,450,000 = $1,280,000 + $100,000 + X – $60,000
X = $1,450,000 – $1,280,000 - $100,000 + $60,000
X = $130,000 = Net income
12
14.
Answer = E.
Rent Expense: ($1,200 ÷ 12 months) × 7 months = $700
Prepaid Rent: ($1,200 ÷ 12 months) × 5 months remaining for next year = $500
Currently, NO Prepaid Rent is recorded, and too much Rent Expense ($1,200) is recorded.
Prepaid Rent
Rent Expense
500
500
This puts $500 of Prepaid Rent on the books and REDUCES Rent Expense by $500 to the correct
amount of $700 ($1,200 - $500).
15. Answer = B.
Owners’ Equity
Capital Stock ↑ $70
Assets
Cash ↑ $70
Liabilities
Cash ↑ $30
Loans Payable ↑ $30
Cash ↓ $80
Inventory ↑ $80
Cash ↑ $55
Inventory ↓ $80
Retained Earnings ↓ $25
Assets
Liabilities
Owners’ Equity
Cash $75
Inventory $0
Loans Payable $30
Capital Stock $70
Retained Earnings negative $25
13
Problem II. Statement of Cash Flows (40 points)
20X6
20X6
20X5
Operating Section Calculations:
Sales
22,680
Loss on Sale of Equipment
(170)
Cost of Goods Sold
(14,800)
Selling and Administrative
Expenses
Depreciation Expense
(3,330)
Amortization Expense
(50)
Income Tax Expense
(1,200)
Net Income
2,062
(1,068)
-382 AR increase
-30 Un. Rev. decr.
+ 170 back out
investing activity
+153 Inv. decrease
- 70 AP decrease
+11 PPD Exp. decr.
+1,068 back out
non-cash item
+50 back out noncash item
+16 Tax Pay. Incr.
22,268
0
(14,717)
(3,319)
0
0
(1,184)
3,048
14
Investing Section Calculations:
Financing Section Calculations:
15
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