ACG 2021, Introduction to Financial Accounting, Summer 2001, Exam 1

ACG 2021, Introduction to Financial Accounting, Summer 2001, Exam 1
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7. Assume the accounting entities use a calendar year unless otherwise noted.
8. Assume a 360-day year.
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2021EX1SM01A 6/13/01 2
exam code = A
1. The following amounts are reported in the ledger of Kuffuor Company:
Assets $ 25,000
Liabilities 15,000
Retained earnings 3,000
What is the balance in the contributed capital account?
A) $ 7,000.
B) $ 8,000.
C) $12,000.
D) $13,000.
E) None of the above is correct.
2. Select the statement which best describes the primary purpose of closing entries.
A) To facilitate adjusting entries.
B) To reduce the balances of revenue and expense accounts to zero so that they may be
used to accumulate the revenues and expenses of the next period.
C) To complete the recording of various transactions which are begun in one period and
concluded in a later period.
D) To determine the amount of net income or net loss for the period.
E) None of the above is correct.
3. When using the allowance method for accounting for bad debts, accounts receivable is reported
on the balance sheet at the expected net realizable value. When a particular receivable from a
customer ultimately is determined to be uncollectible, the recording of this event will
A) decrease the net realizable value of the accounts receivable.
B) have an effect that is not determinable from the information given.
C) increase the net realizable value of the accounts receivable.
D) have no effect on the net realizable value of the accounts receivable.
E) None of the above is correct.
4. At the end of 2001, the following data were taken from the accounts of Timberline Company:
Contributed Capital $ 209,000
Retained earnings, beginning balance January 1, 2001 100,000
Total revenue earned during 2001 190,000
Total expenses incurred during 2001 180,000
Total cash collected during 2001 200,000
The 2001 closing entries would include a
A) $10,000 net credit to Retained earnings.
B) $10,000 net debit to Retained earnings.
C) $190,000 debit to Retained earnings.
D) $180,000 credit to Retained earnings.
E) $10,000 credit to Contributed capital.
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5. The following information was taken from the records of Kofi corporation for the period
ending December 31, 2000.
Advertising expense??????????.$1,200
Equipment??????????????? 800
Accounts Receivable?????????. 1,500
Notes Payable ???????????? 6,000
Retained Earnings??????????.. 8,420
Utilities expense ???????????? 1,385
Revenues ???????????????? 4,620
Dividends ???????????????.. 975
Interest receivable ??????????? 125
Rent expense ?????????????? 655
Assuming that 6,000 shares of common stock are outstanding, earnings per share is
approximately:
A) $1.40
B) $0.40
C) $0.27
D) $0.23
E) none of the above
6. The current standard-setting board for accounting in the private sector is the:
A) Securities and Exchange Commission (sec)
B) Financial Accounting Standards Board (fasb)
C) Private Sector Accounting Standards Board (psasb)
D) American Institute of Certified Public Accountants (aicpa)
E) American Accounting Association (aaa)
7. Which one of the following accounts would not be closed at the end of the accounting
year?
A) Rent expense.
B) Dividends payable.
C) Sales revenue.
D) Salaries expense.
E) All of the above would be closed.
8. On July 1, 2000, jjj Company signed a two-year $8,000 note payable with 9 percent
interest. At due date, July 1, 2002, the principal and interest will be paid in full. Interest
expense should be reported on the income statement for the year ended December 31,
2000, in the amount of
A) $ 1,440.
B) $ 720.
C) $ 420.
D) $ 360.
E) None of the above is correct.
2021EX1SM01A 6/13/01 4
Use the following to answer questions 9-10:
In 2000, Reagan Company disposed of a segment of its business and incurred a pre-tax loss on
the disposal of $30,000. In the same year, a flood caused $20,000 of damages to a building. The
flood damage qualified as an extraordinary item. Income from continuing operations before taxes
was $60,000 for 2000 and the 20 percent tax rate applied to all of the items above.
9. How would the company report the discontinued operation for 2000?
A) Loss from discontinued operations of $24,000.
B) Loss from discontinued operations of $30,000.
C) Loss from discontinued operations of $20,000.
D) Loss from discontinued operations of $16,000.
E) None of the above is correct.
10. What net income or net loss would the company report for 2000?
A) $8,000 net income.
B) $4,000 net income.
C) $(2,000) net loss.
D) $2,000 net income.
E) None of the above is correct.
11. At the beginning of 2000, Down Company had office supplies inventory of $400. During
2000, the company purchased office supplies amounting to $2,500 (paid for in cash and
debited to Office supplies inventory). At December 31, 2000 (end of the accounting
year), a count of office supplies on hand reflected $300. Therefore, the adjusting entry
should include a
A) debit to Supplies expense of $2,500.
B) credit to Office supplies inventory of $2,500.
C) debit to Supplies expense of $2,600.
D) credit to Office supplies inventory of $2,400.
E) credit to Office supplies of $300.
12. The Securities and Exchange Commission?s (sec) report that is required to be filed if
any special event occurs that is material in amount is the
A) Form 10K
B) Form 8K
C) Form 10Q
D) Prospectus
E) None of the above
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13. Upon completing an aging analysis of accounts receivable, the accountant for Rosco
Works estimated that $5,000 of the current $98,000 of accounts receivable would be
uncollectible. The allowance for doubtful accounts had a $400 credit balance at year-end
prior to adjustment. The amount of bad debt expense that should appear in Rosco?s
income statement for the year is
A) $5,000.
B) $5,400.
C) $4,600.
D) $0.
E) None of the above is correct.
14. The owner of an office building should report rent collected in advance as a debit to cash
and a credit to
A) a liability.
B) an asset other than cash.
C) a revenue.
D) an expense.
E) None of the above is correct.
15. A customer purchased $2,000 of goods on credit from Holiday Party Supply on May 1.
The customer received the bill on May 15 and mailed a $2,000 check on May 28. Holiday
received the check on May 30. In recording this transaction, Holiday should credit Sales
Revenue for $2,000 on
A) May 1.
B) May 15.
C) May 28.
D) May 30.
E) None of the above is correct.
16. When preparing the monthly bank reconciliation, the accountant for Tiffany Toys noted
that a check received from a customer last month for $89 was marked nsf and returned
along with the bank statement. In reconciling the bank balance with the company?s cash
account, the $89 should be
A) deducted from the bank balance.
B) added to the bank balance.
C) deducted from the company?s cash balance.
D) added to the company?s cash balance.
E) None of the above is correct.
2021EX1SM01A 6/13/01 6
17. A company had the following partial list of account balances at year-end:
Sales Returns and Allowances $ 500
Accounts Receivable 9,000
Sales Discounts (a contra account) 700
Sales Revenue 57,200
Allowance for Doubtful Accounts 300
The amount of Net Sales shown on the income statement would be
A) $57,200.
B) $64,200.
C) $56,000.
D) $55,700.
E) None of the above is correct.
18. When a company has a complex capital structure (one where stock options or debt or
equity securities that are convertible to common stock exists) the calculation of earnings
per share is called
A) Simple earnings per share
B) Basic earnings per share
C) Diluted earnings per share
D) Complex earnings per share
E) None of the above
19. The primary qualities of accounting information that increase the usefulness to decision
makers are
A) relevance and cost-benefit.
B) reliability and comparability.
C) materiality and relevance.
D) reliability and relevance.
E) None of the above is correct.
20. The effect on total assets of the purchase of supplies for cash is
A) an increase in total assets
B) a decrease in total assets
C) total assets remain unchanged
D) an increase in total assets and total liabilities
E) a decrease in total assets and an increase in stockholders? equity
2021EX1SM01A 6/13/01 7
21. Ramstetter, Inc., purchased a new building on January 1, 2000. The building was valued
at $120,000 with a 40 year life and a zero salvage (residual) value. The company uses
the straight line depreciation method. How would the building appear in the plant,
property and equipment section of the December 31, 2001, balance sheet?
A) Building at 120,000 less accumulated depreciation of 6,000.
B) Building at 120,000 less accumulated depreciation of 3,000.
C) Building at 120,000 less depreciation expense of $3,000.
D) Building at 120,000 less accumulated depreciation of 194,000.
E) None of the above is correct.
22. Calculate the effective tax rate for a company that reports an income tax expense of $3.0
million, net income of $7.5 million, and income before taxes of $10.5 million.
A) 40%
B) 35%
C) 28.5%
D) 71.4%
E) none of the above is correct
23. During the accounting period, Luxor Company had the following data:
Sales of products:
Cash received $10,000
On credit (not yet received) $71,000
Sales returns 1,000
Expenses:
Cash paid $ 3,000
On credit (not yet paid) 35,000
In addition, the company estimates that bad debt expense will amount to $2,000. This is
the first year of business.
Therefore, net sales revenue and expenses were
Net Sales Revenue Expenses
A) $80,000 $35,000
B) $80,000 $38,000
C) $70,000 $36,000
D) $80,000 $40,000
E) None of the above is correct.
24. The three major types of business entities are:
A) Corporations, Partnerships, and Sole proprietorships
B) Corporations, Associations, and Nonprofit organizations
C) Profit, Nonprofit and Corporate organizations
D) Institutions, Partnerships and Corporations
E) Investing, Financing and Operations
2021EX1SM01A 6/13/01 8
25. A company reports sales revenue of $120 million this year and $110 million last year.
Their total assets in the current year are $80 million and last year?s total assets were $75
million. What is the current year?s asset turnover ratio?
A) 1.55
B) 1.61
C) 1.50
D) 1.46
E) 2.12
26. Golden Company had these transactions during the accounting period.
Sold merchandise for $600; its cost was $400.
Collected $400 from an account receivable. The account was established in the previous year.
Used office supplies of $50.
Golden?s net income for the period would be?
A) $ 50.
B) $900.
C) $600.
D) $150.
E) None of the above is correct.
27. Pikachu Company collected $100,000 from customers and paid employees and suppliers
$90,000 during 2000. In addition, the company borrowed $30,000 from the bank and
purchased equipment for $20,000. The company?s 2000 statement of cash flows would
show which of the following?
A) Increase in cash of $20,000.
B) Increase in cash of $30,000.
C) Decrease in cash of $20,000.
D) Decrease in cash of $30,000.
E) None of the above is correct.
28. Which of the following is true about gross profit (gross margin)?
A) It is a separate account in the general ledger.
B) It is net sales minus cost of goods sold.
C) It is sales plus cost of goods sold.
D) It is net sales minus all expenses.
E) None of the above is correct.
29. A calendar year reporting company preparing its annual financial statements should use
the phrase " As At December 31, 20XX" in the heading of
A) all of the required financial statements it prepares.
B) none of the required financial statements its prepares.
C) the income statement and balance sheet, but not the statement of cash flows.
D) the income statement, but neither the balance sheet nor the statement of cash flows.
E) the balance sheet only.
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30. Discontinued operations are
A) the amount reflected on the income statement for adjustments made to balance sheet
accounts when applying different accounting principles.
B) the result of the disposal of a major segment of the business.
C) a gain or loss that is both unusual in nature and infrequent in occurrence.
D) a prediction of earnings for future accounting periods.
E) None of the above is correct.
31. Which of the following will not result in recording a transaction?
A) Signing a contract to have an outside cleaning service clean offices nightly
B) Paying our employees their wages
C) Selling stock to investors
D) Buying equipment and agreeing to pay a note payable and interest at the end of a year
E) All of the above result in recording a transaction
32. Which generally accepted accounting principle best supports the establishment of the
account, allowance for doubtful accounts?
A) Matching principle.
B) Continuity principle.
C) Exception principle.
D) Revenue principle.
E) Comparability principle.
33. The adjusted trial balance of Wilson Feed and Seed included the following accounts:
assume that all accounts have normal balances.
Accounts Payable $10,000
Accounts Receivable 14,000
Accumulated Depreciation-Building 13,000
Building 75,000
Capital Stock 40,000
Cash 10,000
Interest Payable 1,400
Inventory of Merchandise 30,000
Land 15,000
Prepaid Insurance 2,200
Retained Earnings 64,100
Salaries Payable 3,800
Supplies 400
Unearned Rent Revenue 100
What amount of current assets would appear on the balance sheet?
A) $56,600.
B) $56,200.
C) $26,200.
D) $24,000.
E) None of the above is correct.
2021EX1SM01A 6/13/01 10
34. The financial leverage ratio for Papa John?s was 1.2 in 2001 while its competitors Uno
Restaurant?s ratio was 1.98 and Chuck E Cheese?s ratio was 1.41 for that same year. The
low ratio for Papa John?s indicates
A) Papa John?s finances more of its assets through debt than their two competitors
B) Uno Restaurant finances more of its assets using equity than both Papa John?s and
Chuck E Cheese
C) Papa John?s uses less debt than equity financing to acquire its assets
D) None of the above statements is true
E) Both A and B are correct
35. On the statement of cash flows, a company would report the purchase of machinery as
cash used in
A) operating activities.
B) financing activities.
C) purchasing activities.
D) investing activities.
E) None of the above is correct.
36. Failure to make an adjusting entry to recognize service revenue receivable would cause
A) an understatement of assets, net income, and stockholders? equity.
B) an overstatement of assets and stockholders? equity and an understatement of net
income.
C) no effect on assets, liabilities, net income, nor stockholders? equity.
D) an overstatement of assets, net income, and stockholders? equity.
E) None of the above is correct.
37. On January 1, 2002, Seddoh Inc., started the year with a $22,000 credit balance in its
retained earnings account. During 2002, the company earned net income of $40,000 and
received cash of $15,000 as an additional investment by its owners. At the end of
December 31, 2002 the balance in the retained earnings account is $52,000. Therefore,
dividends declared for 2002 amounts to
A) $25,000.
B) $15,000.
C) $32,000.
D) $10,000.
E) None of the above is correct.
38. The collection of an account receivable from a customer would
A) Increase liabilities.
B) Decrease liabilities.
C) Not affect liabilities.
D) Decrease stockholders? equity.
E) None of the above is correct.
2021EX1SM01A 6/13/01 11
39. On December 31, 2000, Ted Corporation paid $2,000 for next year?s insurance coverage.
This transaction should be recorded as follows by Ted Corporation:
A) Insurance Expense $2,000
Insurance payable $2,000
B) Prepaid insurance $2,000
Insurance payable $2,000
C) Cash $2,000
Retained earnings $2,000
D) Prepaid insurance $2,000
Cash $2,000
E) None of the above is correct.
40. Which of the following would not cause stockholders? equity to change?
A) Sale of additional stock to investors.
B) Earning revenue for services performed.
C) Collection of an account receivable.
D) Declaration of a cash dividend to stockholders.
E) All of the above is correct.
41. Central Company sold goods for $5,000 to Western Company on March 12 on credit. Terms
of the sale were 2/10, n/30. At the time of the sale, Central recorded the transaction by
debiting Accounts Receivable for $5,000 and crediting Sales Revenue for $5,000. Western
paid the balance due on April 9. To record the April 9 transaction, Central would debit
A) Cash for $4,900.
B) Accounts Receivable for $5,000.
C) Cash for $5,000.
D) Sales discounts for $100.
E) None of the above is correct.
42. The accounts payable account has a beginning balance of $1,000 and we purchased
$3,000 of inventory on credit during the month. The ending balance was $800. How
much did we pay our creditors during the month?
A) $2,800
B) $3,000
C) $3,200
D) $3,000
E) None of the above amounts is correct
43. In 2010, Shaq reported net sales revenues of $19.8 billion and cost of goods sold for $6.0
billion. Their gross profit percentage for 2010 was
A) 30.3%
B) 69.7%
C) 43.5%
D) 25%
E) None of the above
2021EX1SM01A 6/13/01 12
44. A decrease in the receivable turnover ratio will have what type of effect on cash?
A) Cause an increase in cash flow from operations
B) Cause a decrease in cash flow from operations
C) Cause no change in cash flow from operations
D) The effect on cash flow cannot be determined with the above information
45. A machine that cost $10,000 was purchased at the beginning of the current business year.
Assuming that an equal amount of depreciation will be recorded for each year of the machine?s
life at $800, the adjusting entry made at the end of the current business year should include a(n)
A) $10,000 credit to Accumulated depreciation.
B) $10,000 credit to Depreciation expense.
C) $800 credit to Depreciation expense.
D) $800 credit to Accumulated depreciation.
E) $800 debit to Repair expense.
46. Which of the following would appear in the current asset section of a classified balance sheet?
A) Intangible assets.
B) Bonds payable.
C) Prepaid expenses.
D) Accumulated depreciation.
E) None of the above is correct.
47. During 2001, Hotmail Corporation earned service revenues amounting to $200,000, of which
$120,000 were collected in cash; the balance will be collected in January 2002. The 2001
income statement of the company should report the following amount for service revenues
A) $ 80,000.
B) $120,000.
C) $320,000.
D) $200,000.
E) None of the above is correct.
48. At the end of 2000, Iverson Company made the following adjusting entry to record
$10,000 accrued (unpaid) wages:
Wage expense ?????????. 10,000
Wages payable ??????? 10,000
A payroll of $40,000 (including the $10,000 accrued wages) was paid during the first
week of January, 2001. The entry to record the payment of this payroll should include a
A) $30,000 debit to Wages expense and a $10,000 debit to Wages Payable.
B) $40,000 debit to Wages expense and a $10,000 debit to Wages Payable.
C) $50,000 debit to Wages expense and a $10,000 debit to Wages Payable.
D) $10,000 debit to Wages expense and a $30,000 debit to Wages Payable.
E) None of the above is correct.
2021EX1SM01A 6/13/01 13
49. By treating sales returns and allowances as a contra revenue but treating sales discounts
and credit card discounts as selling expenses, we have the following impact
A) Gross margin is reduced by sales returns and allowances, sales discounts and credit
card discounts
B) Gross margin is reduced by sales returns and allowances but all three accounts cause
a decrease in income from operations
C) Gross margin is reduced by sales returns and allowance but operating income is only
reduced by sales discounts and credit card discounts
D) None of the above is correct
50. During 2001, Blue Corporation incurred operating expenses amounting to $100,000 of
which $75,000 were paid in cash; the balance will be paid in January 2002. Transaction
analysis of operating expenses for 2000, should reflect only the following
A) decrease stockholders? equity, $75,000; decrease assets, $75,000.
B) decrease assets, $100,000; decrease stockholders? equity, $100,000.
C) decrease assets, $100,000; increase liabilities, $25,000; decrease stockholders? equity,
$100,000.
D) decrease stockholders? equity, $100,000; decrease assets, $75,000; increase liabilities,
$25,000.
E) None of the above is correct.
2021EX1SM01A 6/13/01 14

Exam 1,
Summer,
2001
Form A Form B Form C Form D Form E
1 A D A C A
2 B A D A A
3 D C B A C
4 A A D A D
5 D A C C D
6 B D C D D
7 B A B C D
8 D C A D B
9 A A B C B
10 A E C B D
11 C D A A A
12 B D C C B
13 C A D A A
14 A C C B D
15 A C A C D
16 C A A A A
17 C A A A A
18 C D A D A
19 D B A A E
20 C C D C C
21 A D C A C
22 C D B D A
23 D A B B B
24 A D D B D
25 A B B A C
26 D C C D C
27 A B C C B
28 B C A B C
29 E C B D A
30 B B D D C
31 A B C D C
32 A D C D A
33 A C A B D
34 C A E A C
35 D A A E A
36 A A B B A
37 D C D A D
38 C D D D D
39 D A B C A
40 C C A C C
41 C C D D B
42 C D C A D
43 B B D A C
44 B B C C A
45 D A D D A
46 C C C B C
47 D A A C B
48 A B A C C
49 B B A A B
50 D D D B B

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