TIMED
Version B
Name _________________________________
Section _____________
Quiz #1
Accounting 2010
Fall 2012
Professor Derrald E. Stice ...................................................L01, L02, L03
INSTRUCTIONS:
1.
2.
You MAY write on this quiz. You will turn the quiz when the quiz period ends. You may also write on the
scratch paper provided. You may NOT take your scratch paper out of the testing room.
This examination consists of 34 multiple choice questions. The answers to the 34 multiple choice questions
are to be indicated on the quiz.
3. WRITE your name, student id, and section number on this quiz!
4.
5.
TIME: There is a 2 hour time limit on this quiz.
CALCULATORS: You may use your own calculator. Bringing Accounting 2010-related material into the
testing room stored in your calculator constitutes cheating. Taking information related to this exam out of the
testing room stored in your calculator also constitutes cheating.
1.
In financial statements, accrual accounting and cash accounting:
a.
b.
c.
d.
always result in the same numbers.
never result in the same numbers.
usually result in the same numbers.
usually do not result in the same numbers.
2.
The notes to the financial statements provide important information about the economic
state of the firm.
a.
b.
True
False
3.
Jafar Company purchases a $10,000 computer for the business. Given the rapidly changing
technology environment of the company, it is unclear whether this computer will provide
an economic benefit to the company for two years OR three years. Jafar Company should:
a.
b.
c.
d.
Record a $10,000 expense in the year of the purchase.
Record the purchase of a $10,000 asset in the year of the purchase.
Wait to record the transaction until it is clear how long the computer will provide an
economic benefit.
Assume the computer will last forever.
4.
Goodwill can be recorded on the balance sheet when:
a.
b.
c.
a company can prove it has invested money on a research project.
a company has generated sales from a project in research and development.
a company purchases another company for more than the value of net assets the purchased
company.
a company develops a recognizable brand or trademark that generates a probable future
economic benefit.
a company develops loyal customers who experience positive feelings whenever they think
about the company’s products.
d.
e.
5.
Hayley Company is a retailer, like Wal-Mart. The data below are for Hayley Company.
Accounts Payable
Accounts Receivable
Capital Stock
Cash
Cost of Goods Sold
Inventory
Long‐term Debt
Property, Plant, and Equipment
Rent Expense
Retained Earnings
Sales
Utilities Expense
Wage Expense
17,000
15,000
5,000
4,500
52,000
17,000
20,000
40,000
11,000
34,500
100,000
16,000
15,000
When Hayley Company sells you an item for $1.00, on average what is Hayley’s wholesale
purchase price of that item?
a.
b.
c.
d.
e.
52 cents
17 cents
15 cents
32 cents
67 cents
6.
See the data for Hayley Company given in Question 6. When Hayley Company sells you
an item for $1.00, how much profit does Hayley Company get to keep after paying ALL
business expenses?
a.
b.
c.
d.
e.
10.5 cents
6.0 cents
15.5 cents
58.0 cents
41.0 cents
7.
Which ONE of the following statements correctly identifies the two ways for an owner to
make a profit on an investment?
a.
b.
c.
d.
e.
Dividends and selling appreciated stock
Interest and dividends
Interest and selling appreciated stock
Dividends and profit margin
Interest and profit margin
8.
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; that 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.
b.
c.
d.
e.
Cash is $55.
Total Owners’ Equity is $45.
Total Owners’ Equity is $95.
Total Owners’ Equity is $70.
Inventory is $25.
9.
Mimi Company has the following account balances.
Contributed Capital $35,000
Cash
10,000
Inventory
50,000
Land
100,000
Retained Earnings
60,000
What is the amount of total LIABILITIES?
Note: Not all accounts are shown, but the accounts shown are sufficient to correctly answer the
question. All asset accounts are shown, and all owners’ equity accounts are shown.
a.
b.
c.
d.
e.
$35,000
$95,000
$65,000
$160,000
$105,000
Use the following data for Ranger Bren Company to answer questions 10 and 11.
Accounts Payable
Accounts Receivable
Accumulated Depreciation: Building
Accumulated Depreciation: Equipment
Additional Paid‐in Capital
Building
Cash
Common Stock, par value
Current Portion of Long‐term Debt
Equipment
Inventory
Land
Long‐term Debt
Retained Earnings
Short‐term Loan Payable
10.
a.
b.
c.
d.
e.
11.
a.
b.
c.
d.
e.
1,200
3,000
6,500
2,500
6,700
12,000
1,000
500
3,000
10,000
5,000
4,000
8,000
5,100
1,500
Compute Ranger Bren’s total CURRENT ASSETS.
$10,200
$4,000
$26,000
$9,000
$18,000
Compute Ranger Bren’s TOTAL ASSETS.
$44,000
$35,000
$26,000
$33,200
$34,000
12. The following data relate to land purchased by Seth one year ago.




Seth purchased land for $510,000 one year ago.
Seth would have to pay $770,000 to buy an equivalent piece of land now.
Seth has special expertise in the local real estate market. He can sell this land for
$850,000 less $30,000 in various fees to finalize the sale.
Comparable land sales data in the local area suggest that the average selling price for an
equivalent piece of land has been about $790,000 during the past year.
What is the value of the land that shows up on Seth’s balance sheet?
a.
b.
c.
d.
e.
$510,000
$770,000
$820,000
$850,000
$790,000
13. Below are summaries of the balance sheets of five companies. The amounts are all stated as
a percentage of total assets.
A
B
C
D
E
Receivables
0
25
78
0
80
Inventory
60
15
0
5
0
Cash and investment securities
5
55
20
70
10
Property, plant, and equipment
35
5
2
25
10
Short-term payables
20
20
1
3
5
Other current liabilities
5
10
90
2
0
Long-term liabilities
20
30
6
35
25
Equity
55
40
3
60
70
Which ONE of the balance sheet columns is most likely to be from a retailer that only makes
cash sales?
a.
b.
c.
d.
e.
Company A
Company B
Company C
Company D
Company E
14. Below are summaries of the balance sheets of five companies. The amounts are all stated as
a percentage of total assets.
A
B
C
D
E
Receivables
0
25
78
0
80
Inventory
60
15
0
5
0
Cash and investment securities
5
55
20
70
10
Property, plant, and equipment
35
5
2
25
10
Short-term payables
20
20
1
3
5
Other current liabilities
5
10
90
2
0
Long-term liabilities
20
30
6
35
0
Equity
55
40
3
60
95
Which ONE of the balance sheet columns is most likely to be from a bank?
a.
b.
c.
d.
e.
Company A
Company B
Company C
Company D
Company E
15. Which ONE of the following companies has recorded in its balance sheet a large liability
that relates to services for which customers have paid but that the company has not yet
delivered?
a.
b.
c.
d.
e.
Hang Seng Bank
Cathay Pacific Airways
Microsoft
McDonalds
Wal-Mart
16.
Using the data below, compute NET INCOME.
Accounts Payable
Cost of Goods Sold
Cash
Capital Stock
Dividends
Equipment
Inventory
Loans Payable
Prepaid Rent
Rent Expense
Retained Earnings (beginning)
Sales Revenue
Utilities Expense
a.
b.
c.
d.
e.
120
250
100
400
160
1,640
550
860
50
200
700
1,200
330
$420
$260
$370
$210
$670
17. Refer to the data in Question 16. Compute RETAINED EARNINGS at the END of the
year.
a.
b.
c.
d.
e.
$1,310
$1,210
$1,060
$910
$960
18. Using the data below, compute the CHANGE IN RETAINED EARNINGS during the
year.
Total Revenue
Total Expenses
Dividends
Capital Contributions
during the year
Owners' Equity
start of the year
a.
b.
c.
d.
700
1,000
120
250
1,400
Decrease $420
Increase $300
Decrease $180
Increase $180
19. Assets decreased by $100,000 during the year. Liabilities increased by $30,000 during the
year. Dividends for the year were $50,000. Expenses for the year were $200,000. Capital
contributions during the year were $25,000.
Compute REVENUES for the year.
a.
b.
c.
d.
e.
f.
g.
$605,000
$455,000
$405,000
$535,000
$255,000
$275,000
$95,000
20. The following data are to be used for Question 20.
Accounts payable
Accounts receivable
Bad debt expense
Cash
Cost of goods sold
Depreciation expense
Equipment
Extraordinary gain
Income tax expense
Interest expense
Loss from discontinued operations
Prepaid rent
Rent expense
Research and development expense
Sales
750
1,600
300
120
4,000
1,100
6,000
150
600
3,800
1,000
100
700
200
11,000
All numbers are shown as positive amounts. You can tell from the label whether the items should
be added, subtracted, or excluded from your calculations
Using these data, compute GROSS PROFIT.
a.
b.
c.
d.
e.
$5,900
$7,000
$6,880
$7,120
$7,150
21. For which ONE of the following is COST OF GOODS SOLD most likely to be the largest
expense?
a.
b.
c.
d.
e.
Hang Seng Bank
Wal-Mart
United Airlines
HSBC Bank
American Express (credit card company)
22. The information below is for Memo Company.




During the year the company signed and began working on consulting contracts totaling
$10,000,000.
During the year the company completed work on consulting contracts with a total
contract price of $6,000,000. Work on the remaining $4,000,000 in contracts is 30%
completed.
During the year the company collected cash from its consulting contracts totaling
$8,000,000.
On January 1, the company purchased a building for $5,000,000 cash. This building is
expected to be useful for 25 years.
What is Memo Company’s NET INCOME for the year?
a.
$7,000,000
b. $5,000,000
c.
$3,000,000
d. $6,000,000
e.
$4,000,000
23. On January 31 of this year, the company borrowed $3,000 cash from the local bank. On
December 31 of this year, the company is repaying the bank the $3,000 loan plus $250 in
interest. Which ONE of the following would be included in the journal entry necessary to
record this $3,250 cash repayment?
a.
b.
c.
d.
e.
DEBIT to Interest Expense for $3,250
DEBIT to Retained Earnings for $3,250
CREDIT to Interest Expense for $3,250
DEBIT to Loans Payable for $3,000
CREDIT to Loans Payable for $3,000
24. The company paid cash of $1,500 to one of its suppliers from whom it regularly purchases
inventory. Of this amount, $400 in cash was to pay for an inventory purchase that had been
made previously on account; the inventory purchase itself was recorded previously. The
remaining $1,100 cash was for a cash purchase for new inventory. Which ONE of the
following would be included in the journal entry necessary to record this $1,500 cash
payment?
a.
b.
c.
d.
e.
DEBIT to Accounts Payable for $1,100
CREDIT to Inventory for $1,500
DEBIT to Inventory for $1,100
DEBIT to Cash for $1,500
CREDIT to Accounts Payable for $1,100
25. The company sold inventory that cost $800 for a price of $1,300. Of this $1,300 amount,
the company received $200 in cash and the remaining $1,100 was put on the customer’s
account. Which ONE of the following would be included in the journal entries necessary to
record this sale of inventory for $1,300?
a.
b.
c.
d.
e.
26.
CREDIT to Sales for $500
CREDIT to Sales for $800
CREDIT to Sales for $1,100
CREDIT to Sales for $200
CREDIT to Sales for $1,300
The beginning balance in the accounts receivable account was $5,000. During the month,
the following four journal entries (involving Accounts Receivable) were recorded:
a.
Cash
2,700
Accounts Receivable
b.
c.
d.
Accounts Receivable
Sales
27.
a.
b.
c.
d.
e.
f.
6,500
6,500
Allowance for Bad Debts
Accounts Receivable
Cash
Accounts Receivable
Sales
Compute the ending Accounts Receivable balance.
a.
b.
c.
d.
e.
2,700
200
200
1,000
2,000
$10,600
$10,400
$10,800
$5,600
$5,400
Which ONE of the following accounts typically has a DEBIT balance?
Long-term Debt
Capital Stock
Sales Revenue
Retained Earnings
Accounts Receivable
Unearned Service Revenue
3,000
28.
a.
b.
c.
d.
e.
Which ONE of the following accounts typically has a CREDIT balance?
Accounts Receivable
Cost of Goods Sold
Unearned Rent Revenue
Inventory
Prepaid Insurance Expense
29. On May 1 of Year 1, the company paid $2,400 in advance for 2 years (24 months) of
insurance, with the insurance period beginning on May 1 of Year 1. This was recorded as
Prepaid Insurance -- Which ONE of the following will be included in the ADJUSTING
ENTRY necessary on December 31 of Year 1?
a.
b.
c.
d.
e.
DEBIT to PREPAID INSURANCE for $2,400
CREDIT to CASH for $2,400
DEBIT to INSURANCE EXPENSE for $1,600
CREDIT to PREPAID INSURANCE for $800
CREDIT to INSURANCE EXPENSE for $800
30. The company pays its workers every two weeks. As of December 31 of Year 1, the
company’s workers have earned wages of $7,000 for which they have not yet been paid; they
will not be paid these wages until January of next year. The correct adjusting entry was made. –
On January 5 of Year 2, the company paid total wages to the employees of $10,000, of which
$7,000 related to work performed last year. Which ONE of the following is included in the
journal entry necessary on January 5 of Year 2 to record the payment of $10,000 in cash?
a.
b.
c.
d.
e.
DEBIT to WAGES EXPENSE for $10,000
CREDIT to CASH for $7,000
CREDIT to WAGES PAYABLE for $7,000
DEBIT to WAGES PAYABLE for $7,000
DEBIT to CASH for $7,000
31. What is the significance of the “kink” in the reported earnings-per-share distribution shown
in class around $0?
a.
b.
c.
d.
e.
This is evidence that stock prices in the United States have, on average, increased by about
10% per year over the past 80 years.
This is evidence that companies manage reported earnings through various techniques to
avoid reporting earnings just below zero.
This is evidence that the cost of capital is less than the cost of forecasting.
This is evidence that the probability of an earnings management meltdown is greater than
50%.
This is evidence that companies are using analysts’ earnings forecasts to avoid paying
corporate income taxes.
32. What is one way of distinguishing between earnings management that is ethically right and
earnings management that is ethically wrong?
a.
b.
c.
d.
e.
Income tax consequences
Cost of forecasting
Management intent
Short-term impact on stock price
Absence of SEC enforcement action
33. As discussed in class, how should financial statement users view the financial statements?
a.
b.
c.
d.
e.
From a financial perspective
From a managerial perspective
In a skeptical light
In a leveraged light
In a forecasting light
34. As discussed in class, what personal concerns should a company accountant have when
that accountant is asked to make accounting assumptions in order to turn a loss into a
profit?
a.
b.
c.
d.
e.
The accountant might not have enough time to compute the fluctuating values for both bad
debt expense and depreciation expense.
The accountant might not have enough time to compute the fluctuating values for both
warranty expense and environmental cleanup expense.
The accountant might become personally liable for additional income tax payments that
have to be made by the corporation.
The accountant might become personally liable for additional costs associated with guiding
financial analysts to produce a reachable earnings forecast.
The accountant might develop a reputation as being someone who is willing to interpret the
accounting rules “flexibly” in order to help the company meet profit targets.
35.
36.
During July 2013, Hasan Corporation incurred but did NOT pay a $500 utility expense. This
transaction would be posted as:
a.
Accounts Payable
|
500|
Utility Expense
|
| 500
b.
Utility Expense
|
| 500
Cash______
|
500 |
c.
Utility Expense
|
500 |
Cash______
|
500 |
d.
Accounts Payable
|
| 500
Utility Expense
|
500 |
e.
Accounts Receivable
|
500 |
___Prepaid Utility Expense
|
| 500
f.
Inventory
|
500 |
Utility Expense_____
|
| 500
I have $200 billion in PP&E. This is 66% of my total assets of $303 billion.
a.
b.
c.
d.
e.
f.
g.
Google
Apple
Hang Seng Bank
Wal-Mart
Exxon Mobil
HSBC Bank
IBM
37.
On June 1, 2012, MaScare Company paid $3,600 for an insurance policy on some equipment that
will be in effect for the 12 months from June 1, 2012 through May 31, 2013.
MaScare recorded this payment on June 1 by debiting Insurance Expense. On September 1,
2012, MaScare paid an additional $4,800 for an insurance policy on a building that will be in
effect for the 12 months from September 1, 2012 through August 31, 2013. MaScare recorded
this payment on September 1 by debiting Prepaid Insurance.
On December 31, 2012, MaScare makes one summary adjusting entry to make sure that the
amount of Insurance Expense for 20X1 and the Prepaid Insurance amount as of December 31,
20X1 are both correct. The necessary summary adjusting entry includes a
a.
b.
c.
d.
e.
Debit to Insurance Expense of $1,500
Debit to Insurance Expense of $2,100
Debit to Insurance Expense of $1,600
Debit to Insurance Expense of $1,100
Debit to Insurance Expense of $100
Scrap Paper
Scrap Paper
Scrap Paper
Scrap Paper
CLASS EVALUATION:
Please rip this sheet off and turn it in separately. Do NOT write your
name on it. This evaluation is ANONYMOUS.
What are some things you like about the class so far?
What are some things you dislike about the class so far?
Please list any suggestions for class that you have.
Quiz #1 Fall 2012 Exam Solution
Version A/B
1. D
2. A
3. B
4. C
5. A
6. B
7. A
8. B
9. C
10. D
11. C
12. A
13. A
14. C
15. B
16. A
17. E
18. A
19. G
20. B
21. B
22. A
23. D
24. C
25. E
26. A
27. E
28. C
29. D
30. D
31. B
32. C
33. C
34. E
35. D
36. E
37. E