Accounting 303
Exam 1
Fall 1996
Name ____________________
Section _____
Row _____
I.
Multiple Choice (2 points each, 44 points total) Read each
question carefully and indicate your answer by circling the letter
preceding the one best answer.
1.
Which of the following is the oldest private sector accounting
rule-making body?
a.
Accounting Principles Board
b.
Committee on Accounting Procedure
c.
Financial Accounting Standards Board
d.
Securities and Exchange Commission
2.
Which organization has the most legal authority?
a.
FASB
b.
AICPA
c.
GASB
d.
SEC
3.
When an item meets the definition of an element of financial
statements, is measurable in monetary units, and is both relevant
and reliable, the item would ordinarily
a.
be recognized
b.
be reported in financial statements or in related notes
c.
be reported in financial statements, related notes, or the
auditor's report
d.
not be reported in financial statements
4.
David Frank, a plumbing contractor, recently purchased a jacuzzi
to use in remodeling the bathroom of his own home. If he charged
the cost to his business, this would clearly violate
a.
conservatism
b.
economic entity
c.
going concern
d.
periodicity
5.
Which of the following statements is false regarding a subsidiary
ledger?
a.
The purpose of a subsidiary ledger is to store the details
of certain general ledger accounts.
b.
The sum of the individual balances in a subsidiary ledger
should equal the balance in the general ledger control
account.
c.
Journal entries posted to a subsidiary ledger need not be
posted to the general ledger.
d.
A benefit of a subsidiary ledger is that the number of general
ledger accounts necessary is reduced.
6.
The current source of GAAP is the
a.
Institute of Managerial Accountants.
b.
Accounting Principles Board.
c.
Committee on Accounting Procedure.
d.
Financial Accounting Standards Board.
7.
Of the following, which measurement base is most apt to be
objective and verifiable?
a.
historical cost
b.
current cost
c.
fair value
d.
net realizable value
8.
The amount of cash or its equivalent into which an asset is
expected to be converted in due course of business less direct
conversion costs is the definition of
a.
current cost.
b.
fair value.
c.
net realizable (settlement) value.
d.
discounted value of future cash flow.
9.
What
over
a.
b.
c.
d.
10.
principle requires the expensing of the cost of a machine
the periods it generates revenues?
revenue recognition
periodicity
conservatism
matching
Under SFAC 2, the ability through consensus among measurers to
ensure that information represents what it purports to represent
is the definition of the concept of
a.
Relevance.
b.
Verifiability.
c.
Comparability.
d.
Feedback value.
11.
During an entity's lifetime, accountants produce financial
statements at arbitrary moments in time in accordance with which
basic accounting concept?
a.
Verifiability.
b.
Periodicity.
c.
Conservatism.
d.
Matching.
12.
Which of the following financial statements is prepared as of a
given point in time?
a.
income statement
b.
balance sheet
c.
statement of cash flows
d.
statement of changes in shareholders' equity
13.
Which of the following adjusting entries should not be reversed?
a.
Interest Receivable
Interest Revenue
b.
Salaries Expense
Salaries Payable
c.
Insurance Expense
Prepaid Insurance
d.
Prepaid Insurance
Insurance Expense
14.
The premium on a three-year insurance policy expiring on December
31, 1996, was paid on January 1, 1994. The original payment was
debited to a prepaid asset account. The appropriate journal entry
has been recorded on December 31, 1994. The balance in the prepaid
asset account on December 31, 1994, should be
a.
zero
b.
The same as it would have been if the original payment had
been debited initially to an expense account.
c.
The same as the original payment
d.
Higher than if the original payment had been debited
initially to an expense account.
15.
An adjusting entry that records the earned portion of unearned
revenue initially recorded as unearned revenue, always includes
a
a.
debit to an asset account.
b.
credit to an asset account.
c.
credit to a revenue account.
d.
credit to a liability account.
16.
The increases in account balances of the Marvel Corporation during
1995 are presented below:
Assets
$356,000
Liabilities
108,000
Common stock
264,000
Retained Earnings
?
Assuming there were no charges to retained earnings other than
for net income and a dividend payment of $52,000, the net income
for 1995 would be
a.
$36,000
b.
$16,000
c.
$52,000
d.
$68,000
17.
Current assets are those assets expected to be converted to cash
within
a.
one year.
b.
the operating cycle.
c.
the operating cycle or one year, whichever is longer.
d.
the operating cycle or one year, whichever is shorter.
18.
Which of the following current assets is reported at fair value
on the balance sheet?
a.
accounts receivable
b.
inventory
c.
notes receivable
d.
current investments
19.
Accounts receivable are typically reported on the balance sheet
at
a.
fair value
b.
net realizable value
c.
historical cost
d.
present (discounted) value
20.
When the current ratio is greater than 1:1, the use of cash to
pay a current liability will result in
a.
an increase in the current ratio.
b.
a decrease in the current ratio.
c.
an increase in net working capital.
d.
a decrease in net working capital.
Use the following information for questions 21 and 22.
A condensed balance sheet for Opolka Corporation at the end of 1994
is presented below:
Opolka Corporation
Balance Sheet
December 31, 1994
Assets
Cash
Accounts Receivable
Inventory
Plant & Equipment (net)
Intangible Assets
Total
$ 25,000
60,000
95,000
90,000
5,000
Liabilities and Owners' Equity:
Accounts Payable
Notes Payable (Long-Term)
Stock (No-Par)
Retained Earnings
Treasury Stock
Total
$ 45,000
100,000
60,000
90,000
(20,000)
$275,000
21.
Opolka's current ratio at December 31, 1994 is:
a.
1.24
b.
4.00
c.
6.11
d.
1.90
22.
Opolka's debt ratio at December 31, 1994 is:
a.
16.4%
b.
45.5%
c.
52.7%
d.
111.5%
$275,000
II.
1.
Problems
(14 points) The following information is for the Carson Company
for their year ending December 31, 1995. Journalize the
adjusting entry required on December 31, 1995, for each of the
following.
This information applies to both a and b below. Carson purchased
a three-year liability insurance policy on April 1, 1995, for
$9,000.
a.
Prepare the adjusting entry assuming the $9,000 was
initially recorded as prepaid insurance.
b.
Prepare the adjusting entry assuming the $9,000 was
initially recorded as insurance expense.
c.
Carson's credit sales for 1995 amounted to $1,250,000.
Carson estimates that 1% of credit sales will prove
uncollectible.
d.
Prepare the cost-of-goods sold adjusting entry, assuming
Carson uses a periodic inventory system and reported a
January 1, 1995, inventory balance of $36,000; a December
31, 1995, physical inventory found $32,000 of goods on hand;
purchases for 1995 amounted to $675,000; and purchases
discounts accumulated to $3,800 during 1995.
2.
(9 points) Prepare the closing entries necessary to close GRM
Medical's books for 1995, assuming they reported the following
balances on December 31, 1995. Assume each account has its normal
balance.
Accounts Payable. . . . .
Accounts Receivable . . .
Accumulated Depreciation.
Cash. . . . . . . . . . .
Common Stock. . . . . . .
Cost of Goods Sold. . . .
Equipment . . . . . . . .
Miscellaneous Expense . .
Prepaid Supplies. . . . .
Retained Earnings . . . .
Salaries Expense. . . . .
Sales . . . . . . . . . .
Sales Returns . . . . . .
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. $ 200
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250
.
300
.
100
.
500
. 2,700
. 1,200
.
800
.
50
.
100
. 1,200
. 5,500
.
300
3.
(18 points) Calculate the missing amounts and show all work in
the space provided.
Current Assets, December 31, 1995 . . . . . .
Noncurrent Assets, December 31, 1995. . . . .
Total Assets, December 31, 1995 . . . . . . .
Current Liabilities, December 31, 1995. . . .
Noncurrent Liabilities, December 31, 1995 . .
Total Liabilities, December 31, 1995. . . . .
Contributed Capital, December 31, 1995. . . .
Retained Earnings, December 31, 1995. . . . .
Total Stockholders' Equity, December 31, 1995
Total Revenue for 1995. . . . . . . . . . . .
Total Expenses for 1995 . . . . . . . . . . .
Net Income for 1995 . . . . . . . . . . . . .
Retained Earnings, January 1, 1995. . . . . .
A.
Noncurrent Assets, December 31, 1995
B.
Current Liabilities, December 31, 1995
C.
Total Liabilities, December 31, 1995
D.
Contributed Capital, December 31, 1995
E.
Retained Earnings, December 31, 1995
F.
Total Revenue for 1995
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$160
A
410
B
225
C
D
E
110
F
450
30
15
4.
(15 points) The information below is derived from the December
31, 1995, adjusted trial balance of Rucks Produce Company. All
amounts are in thousands, accounts are listed in alphabetical
order, and credits are in parentheses. Use the trial balance
information and the additional information provided below to
prepare in proper format the liabilities and shareholders' equity
sections of Rucks' December 31, 1995, balance sheet.
Accounts Payable . . . . . . . . . .
Accumulated Depreciation . . . . . .
Bonds Payable. . . . . . . . . . . .
Common Stock . . . . . . . . . . . .
Expenses . . . . . . . . . . . . . .
Investments in Stock . . . . . . . .
Land . . . . . . . . . . . . . . . .
Long-Term Mortgage Note Payable, 8%.
Machinery. . . . . . . . . . . . . .
Patents. . . . . . . . . . . . . . .
Retained Earnings, January 1, 1995 .
Sales Revenue. . . . . . . . . . . .
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. $(300)
. (550)
. (400)
. (225)
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850
.
450
.
500
. (800)
.
900
.
50
. (610)
. (995)
0
Additional Information:
* No dividends were declared or paid during 1995.
* The common stock is listed at the proceeds received from its sale.
When Rucks was formed, 10,000 shares of $1 par value stock were
sold for $225,000.
* Of the $400,000 in Bonds Payable, $50,000 will mature during the
next year.
Rucks Produce Company
Liabilities and Shareholders' Equity
(Amounts in Thousands)
December 31, 1995
Liabilities
Current Liabilities
Accounts Payable
Currently Maturing Bonds Payable
Long-Term Liabilities
Bonds Payable
Mortgage Note Payable
Total Liabilities
$300
50
350
800
$
350
1,150
1,500
Shareholders' Equity
Common Stock ($1 par)
Additional Paid-In Capital
Retained Earnings
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
Retained Earnings Computation:
Beginning Balance
+ Net Income (995 - 850)
Ending Balance
610
145
$755
10
215
225
755
980
$2,480